Emerging Market Bonds

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BenSolar
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Post by BenSolar »

peteyperson wrote: I am wondering about US REITs. Perhaps you can weigh in here. I had a plan to allocate 26% of the portfolio to two property mutual funds, 5% sales load and 1.76% mgmt fee. Est. 6.5% gross nominal return. I do wonder how realistic that is for the US


The Morgan Stanley REIT index (the RMS) yields about 5.5% dividends now. Raddr has looking into historical returns of REITs and concluded that real returns are ballpark dividend yield minus 1%. So 4.5% real return estimated going forward. Add your inflation estimate for nominal return estimate.

also that I'll have 26% REIT exposure in US$, 10% in US equities, some EM as well that can sometimes be linked to the US$ also. My total portfolio exposure to the US$ is likely to then be about 40%. I wonder whether a half & half UK expense property fund and cheaper US REIT ETF would be a better option despite the theoretically lower return.


I don't know about putting lumping US and EM assets. Arent' they typically pretty uncorrelated? I would not personally be comfortable having 35% of my portfolio in one foreign country and subject to that currency risk.
it becomes 1.325% vs. a 5% sales load & 1.76% mgmt fees in the UK. The net difference would be a 0.11% bump in w/d rate exc the lost investment to sales loads. How do you feel about that sort of scenario if that was you?


I think I would like getting the diversification and lower expenses of the US REITs, but I wouldn't over-do it. Maybe a cheaper UK option will be available down the road.
Are there any US REIT ETFs you think are good? There seem to be actively managed ones, a Wilshire index REIT and several others to choose from.


I'm not familiar with the ETFs since I'm comfortably ensconced in Vanguards REIT index fund. However, I would choose an index based ETF with the broadest index (I think the Dow REIT index is too narrow ? from memory) and the lowest expenses I could find.

Regards,
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
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BenSolar
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Post by BenSolar »

peteyperson wrote: I am wondering about US REITs.


I forgot to mention: since you have access to the Fool boards, you might want to check out their REIT board. It is a truly excellent resource. Here is a link to the latest 'REIT Week' written by REITNut who is a REIT mutual fund manager and regular poster there. There are many other excellent posters there, too. I browse it periodically and read the highest recced posts. It would be a good place to read about the different REIT indexes and ETFs ... I remember one discussion from about 1-2 months ago that stood out.

Regards,
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
Oliver
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Post by Oliver »

peteyperson wrote: At first I looked at holding several years in cash but when I found a funThere are two UK ETFs now that are popular, one invests in all Corp Bonds in Europe (Euros) and the other top US$ Corp Debt (the latter not so attractive due to your base rate sitting at 1% and ours more like 4%). Both cost 0.20%, by far the lowest cost bonds available directly in the UK.


Hello Petey,

Can you give me some info on the Corp European Bond ETF with a .20% cost? An unhedged international bond fund in the USA costs .85%!

Thanks

Oliver
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Post by peteyperson »

I am sorely tempted to reply:
Oliver wrote: An unhedged international bond fund in the USA costs .85%!


Shame that! :lol:

Petey










However if you have seen "Pulp Fiction", there was a discussion between two gangsters about foot massages and Samuel L. Jackson pronounced himself as "The foot fuckin masta!". As you are thought of as the "Iceland bond fuckin masta!", I would not think of not replying. :twisted:


iShares from America available in the UK. So Barclays people you know already no doubt.

Main page:
http://www.ishares.net/cgi-bin/portfoli ... 14&style=1

Adobe PDF Factsheet:
http://www.ishares.net/pdf/iboxx_factsheet.pdf

Fund holdings breakdown:
http://www.ishares.net/cgi-bin/portfoli ... 14&style=1

IBoxx indices site (their bond index):
www.iboxx.com

London Stock Exchange Quote inc. recent trading:
http://www.prices.londonstockexchange.c ... ol=3252347


I would be very interested to hear your thoughts on the materials. The lack of recent trading confused me, though the issue is traded in two places. For a fund with over E650m, you would expect more trading. Not having owned an ETF before and read the need for caution on not buying issue with a lack of trading/liquidity, that worries me. I haven't mentally signed off on a fixed income ETF because of that concern so I'd welcome the 'bond man''s input there.

We also have a US Bond issue at the same cost. I'd welcome your considered thoughts on how good this looks too.

Main page:
http://www.ishares.net/existing_ishares ... 19-05-2003

PDF factsheet:
http://www.ishares.net/pdf/fs_investop.pdf

Fund holdings breakdown:
http://www.ishares.net/cgi-bin/portfoli ... 15&style=1

London Stock Exchange limited trading again:
http://www.prices.londonstockexchange.c ... ol=3289594

P.S. I shall have some queries for you on different names for Treasuries soon, when I get the time to type them up. Looked at the list available at a brokerage and couldn't tell one type from another. :roll:

Petey
Oliver wrote: Hello Petey,

Can you give me some info on the Corp European Bond ETF with a .20% cost? An unhedged international bond fund in the USA costs .85%!

Thanks

Oliver
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Post by peteyperson »

Thank you, Mr Solar Powered Ben,

Love the name, REITNut. Almost inspired!

I do have this board in my favourites but a timely reminder to visit is useful. I shall see what I can discover. :lol:

Was confused by the data over here: http://www.nareit.com/nareitindexes/web3.htm

All REITS, last year return circa 26%, dividend only 6%. Thought US REITS paid out 95% of net earnings in dividends, am I reading this data incorrectly or is this the quarterly dividend?

What do you budget for on your REIT returns vs costs, if I may ask?

What is the RMS in relation to return benchmarks? Keeping you busy tonight, sorry. :?

Petey

BenSolar wrote:
peteyperson wrote: I am wondering about US REITs.


I forgot to mention: since you have access to the Fool boards, you might want to check out their REIT board. It is a truly excellent resource. Here is a link to the latest 'REIT Week' written by REITNut who is a REIT mutual fund manager and regular poster there. There are many other excellent posters there, too. I browse it periodically and read the highest recced posts. It would be a good place to read about the different REIT indexes and ETFs ... I remember one discussion from about 1-2 months ago that stood out.

Regards,
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ben
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Post by ben »

Sorry Petey - as to the effecientfrontier link you will have to go through Bersteins qtrly nesletter there and find the one called something like: " index funds vs ETFs". Anyway he mentions the advantage for foreigners that we can use ETFs (I.e. he, like most brokers, conclude that most foreigners can not buy US mutual funds) - being low cost alternatives to the rip-offs in our home countries...

As for REIT ETFs there are a few: RWR, ICF, IYR(i think) comes to mind. I don't use as still no problem for me to buy the Vanguard REIT fund via Ameritrade.

As for your question how I would feel about a 5% load and higher e/r on a similar fund.... I think you know where I would put that load fund - somewhere where the sun doesn't shine... :twisted:

Here is bens beginner US based ETF portfolio for foreigners: 50% VTI (total US stock) & 50% EFA (total internat stock ie. non-US). a US citizen might want to reduce EFA. Maybe to zero. at 50%/50% the e/r is 0.25% per year.

Here is bens more diversified/conservative portfolio based on US based ETFs:
25% VTI 25% EFA 25% ICF(REIT) 25% SHY (US short bonds-I would look at EU bonds when ETF out) The total e/r is around the same as above. bonds could be reduced. maybe to zero. leaving only 3 ETFs w. 33% each (or whatever % one prefer).

Disclaimer: I have moved beyond only 4 asset classes as I have also decided to add in micro caps/small caps/more value/ real estate(rental)/emerging markets/asia/gold/EM bonds but if wanted to keep it simple (and only use US ETFs) I would go for one of the 2 above options.
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peteyperson
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Post by peteyperson »

Hi Ben,

What do you use to get into micro caps, asia, gold (I'm assume gold mining rather than Gold, the unperforming commodity)and EM bonds?

Petey
ben wrote: Disclaimer: I have moved beyond only 4 asset classes as I have also decided to add in micro caps/small caps/more value/ real estate(rental)/emerging markets/asia/gold/EM bonds but if wanted to keep it simple (and only use US ETFs) I would go for one of the 2 above options.
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Post by Oliver »

peteyperson wrote:
I would be very interested to hear your thoughts on the materials. The lack of recent trading confused me, though the issue is traded in two places. For a fund with over E650m, you would expect more trading. Not having owned an ETF before and read the need for caution on not buying issue with a lack of trading/liquidity, that worries me. I haven't mentally signed off on a fixed income ETF because of that concern so I'd welcome the 'bond man''s input there.
London Stock Exchange limited trading again:
http://www.prices.londonstockexchange.c ... ol=3289594


Hello Petey,

This is dual listed, I would not be surprised if the German exchage had significantly more volume in trading IBCS.

Oliver
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ben
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Post by ben »

Hi Petey!
I think I must suffer from asset class addiction! :D
First I decided I wanted an equal weighting between US/foreign equity - not just due to my faith in Asia/emerging mkts but also for the build in currency diversification discussed in other of my threads. (in short by keeping a 50/50% split of USD/other currencies my overall buying power will not be as directly affected as if was only in 1 currency). Basically I decided that since my lifestyle would be international my currency of choice/nest egg would also be a basket of currencies.

That would be 3 asset classes....

But hey! Then I read some Bernstein/others and realized that if index products avaliable - it makes sense (especially in a market where large cap PE way out of historical limits) to overweight small caps/micro caps as well as value - so by using ETFs and BRSIX (thks Oliver! owe you a beer!, or a car... :wink:) I twisted the US part that way. That split my 50% USA part into 3 asset classes. - so now at 5.....

The foreign part was covered by EU ETF IEV, Vanguard index fund VPACX(pacific) and Vanguard fund VEIEX - but no real index alternatives for the small/value twist so stuck with that. The charm of the 2 Vanguard funds is that there is absolutely no overlapping of assets/countries. That brought me to 8.....

But hey! That was all equities, which, nomatter what, will have too much correlation for my taste - so Vanguard REIT fund, Gold fund (American century global gold equities - 0.68% e/r but the cheaper Vanguard is closed)+ EM bonds. Reits was added due to dividend+low correlation, gold due to my strong belief that inflation will come raging, and that the USA mad printing of money/deficit would hurt the USD.

TEI (emerging bonds) was added as I could not see enough value/high risk(compared to potential return) in other bonds due to interest rates and my inflation fears. They were paying a healthy(?) 10% dividend when I bought - and "only" 8% now due to capital gains :D That would be 11...

I like to look at is as 3 blocks: 33% US equity/33 % other equity/33% other asset classes. (while ensuring a 50/50 USD/other+gold split)

As my savings grew I realized I wanted more bond exposure - but for same reasons TEI was bough (alternatives sucked) I went VERY alternative and used my Luxembourg bank to purchase a fund which is gearing scandinavien mortgage bonds w. Switz franc loans - agressive for sure - but again; with little correlation to equities.

that made it 27%/27%/27%/19%(last being geared mortgage bonds) so depending on where one put REITS (as i see from correlation point of view they go in my "other" block) I am now 50% equities and 50% "other".

Oh; the apartment was an oppurtunity that fell in my lap - and I should see it as part of my investments - but will only start doing so when I rent it out.

Phew!
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ben
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Post by ben »

Oh forgot; back tested return for 98 to 2002 (both incl) of the portfolio is 7% pr annum vs SP500 1% pr annum and without the crasy SP500 swings.
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BenSolar
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Post by BenSolar »

peteyperson wrote: Was confused by the data over here: http://www.nareit.com/nareitindexes/web3.htm

All REITS, last year return circa 26%, dividend only 6%. Thought US REITS paid out 95% of net earnings in dividends, am I reading this data incorrectly or is this the quarterly dividend?


No, that dividend is yearly. The rest of the return came as price appreciation.
What do you budget for on your REIT returns vs costs, if I may ask?


As I wrote before (I think) I expect long term returns from current levels to be in the ballpark of 4-5% real return, though I would not be a bit surprised by a negative year or more in the near term. The expense ratio of my Vanguard RETI index fund is .33%. I have no other expenses on this asset class, but could incur some soon as a result of rebalancing if they continue to climb.
What is the RMS in relation to return benchmarks? Keeping you busy tonight, sorry. :?


Not sure I understand your question. The RMS is an index, so it is itself a benchmark. It is composed of larger cap REITs, and so isn't as broad as the Wilshire index, but is still pretty broad, and so should track the entire REIT market closely. You can check out returns of an index fund based on the RMS by looking at info on VGSIX. Or you could probably find more specific stuff about the index itself from Morgan Stanley.
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
peteyperson
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Post by peteyperson »

I'm beginning to realise that my appetite for risk via the high risk Pacific & EM may not be high enough. I've tried to put down a higher return number but I'm just not buying it and end up putting down something between 4-5% pre-cost. This doesn't encourage me to allocate a large percentage to the cause.

Why is EM so large on your radar and what do you estimate in your calculations? The last decade did next to nothing in EM and it is very volatile, so it is hard to judge reasonable return. Japan too.

I liked the look of the S&P Europe 350 ETF you mentioned. Broader index than most for Europe.

Petey
ben wrote: Hi Petey!
I think I must suffer from asset class addiction! :D
First I decided I wanted an equal weighting between US/foreign equity - not just due to my faith in Asia/emerging mkts but also for the build in currency diversification discussed in other of my threads. (in short by keeping a 50/50% split of USD/other currencies my overall buying power will not be as directly affected as if was only in 1 currency). Basically I decided that since my lifestyle would be international my currency of choice/nest egg would also be a basket of currencies.

That would be 3 asset classes....
Last edited by peteyperson on Fri Oct 03, 2003 10:43 am, edited 1 time in total.
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Post by peteyperson »

Thanks for your reply, Ben.

Due to the possible overvaluation relative to NAV, I have put growth for REITS down as 2% and dividends as 5% nominal. That is at the bottom end of the suggested 4-5% real.

Petey
BenSolar wrote: As I wrote before (I think) I expect long term returns from current levels to be in the ballpark of 4-5% real return, though I would not be a bit surprised by a negative year or more in the near term. The expense ratio of my Vanguard RETI index fund is .33%. I have no other expenses on this asset class, but could incur some soon as a result of rebalancing if they continue to climb.
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Post by ben »

I have lived and worked in emerging markets for 8 years - mostly in Asia and have seen the development and work attitude that prevails in most of these countries.
Further while the accounting might be a bit more blurry, the PEs look pretty compared to the US/EU.

A growing middle class in many EM will start to ensure that e.g. Asia becomes less and less dependent on the US/EU consumer and more regionally market minded - with a dream consumer base! What do I mean since they can't possible have as much money as the UE/US consumer?

First of all; consumer credit is a new concept in Asia - which is what has driven US/EU the last 10 year. Secondly ASEAN and other free trade org. makes the Asia market very homogenic. Thirdly the consumers will be out buying their FIRST TV, their FIRST car, their FIRST motorbike, house whatever! My parents saved a long time for their first TV - but was still willing to throw 3 month salary after it - as it added VALUE to their life. Same with their first car Etc. Now look at EU/US - should I put a tv MORE in the bath room? I clage the 29 Inch to a flatt screen? It really will not add value to my life the same way the FIRST purchase did. And in tough times I for SURE will not go for that flat screen.

VEIEX is after gold my best performing investment ever - but my train of thought when making the portfolio was simply:
1. I have no clue what market will do best the next many years
2. I will therefore (and due to currency issue) split EVENLY US/foreign
3. in the foreign part I want to include the whole world due to pt. 1
4. while pt.1 still applies I will twist my portfolio towards the asset classes that are below their historical valuation or asset classes I believe have more potential than the mean.

pt. 4 is the controversial one - small cap/value twist I believe has proof/verified by history/studys, but whether Asia+Japan continues to deserve my overweight is not certain. But pt.4 gives me SOME lead room when managing my portfolio, which makes me feel good, and further stops me from doing more stupid things. :D
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