Author: The Investment Blueprint

Weekly Highlights 1 Dec: Is holding cash the optimal strategy now?

#1 Buffett sitting on $128 billion in cash  Well, when the Oracle of Omaha always pays fair value for his acquisitions. And the recent rally in the stock market seems to suggest that investors are willing to pay a premium to be in the market. Is the market getting too hot for Buffett? https://www.cnbc.com/2019/11/29/buffett-sitting-on-128-billion-raises-questions-on-market-valuation.html   #2 $98.5 million ain’t enough When you are a billionaire these days and you are doing good, you still can’t seem to catch a catch. That is the case for Bezo. Recently, Bezo donated $98.5 million to charity and the UK Labour Party leader...

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Weekly Highlights 24 Nov: Volatility and market move in tandem = market snap?

#1 Fear-mongering is real That is the feeling that I am getting. The article commented that the S&P 500 and the VIX, which is a measure of expected volatility, was moving in unison at times. More importantly, this resulted in a positive 10-day rolling correlation between the S&P 500 and the VIX, an event that has not happened since May 2019. https://www.cnbc.com/2019/11/22/the-stock-market-and-its-fear-gauge-vix-are-moving-in-unison.html   #2 Tesla’s futuristic cybertruck worried Wall Street Let’s be honest. It looks pretty awesome. I guess you cannot please all the financial overlords on Wall Street. https://www.reuters.com/article/us-tesla-truck-windows/teslas-cybertruck-launch-takes-hit-as-shatterproof-windows-crack-idUSKBN1XW1CU https://www.cnbc.com/2019/11/22/wall-street-on-teslas-new-pickup-cybertruck-looks-weird.html   #3 Boeing release new Max plane  The...

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Non-transparent ETFs: What you should know

Has the saviour of active management finally arrive? Will the non-transparent aspect of an ETF help active management to finally beat the market consistently? Unlike most ETFs that reveal their holdings daily, with some reveals every month (cough cough Vanguard), a new ETF fund structure which got approved by the US SEC, called the ActiveShares, allows the ETFs’ holdings to be kept confidential. ActiveShares is created by Precidian Investments. https://www.cnbc.com/2019/06/15/the-first-non-transparent-etf-gets-sec-approval-heres-how-it-works.html Who will benefit from ActiveShares? In short, active fund managers who want the stealth aspect of mutual funds holdings and the benefits of operating ETFs. Key Benefits of ActiveShares...

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Weekly Highlights 17 Nov: Global debt set to hit $255 trillion in 2019

#1 US and China lead the debt race to the top I guess when you are ‘boosting’ your economy at all cost (cough cough senseless monetary stimulus and irresponsible fiscal packages), printing and loading up debt at near 0 rates will eventually lead to this situation. To handle the mounting debt and interest payments, you have to broaden and increase your existing revenue streams. For a start, you can ask your allies for help!!! https://www.cnbc.com/2019/11/15/global-debt-surged-to-a-record-250-trillion-in-the-first-half-of-2019-led-by-the-us-and-china.html https://www.reuters.com/article/us-japan-usa/trump-asked-tokyo-for-8-billion-to-keep-u-s-troops-in-japan-foreign-policy-idUSKBN1XQ06F   #2 What else is China not buying?  From AMC to GE Appliance Business, China is scooping up everything within their sight provided...

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Know your ETFs! Your due diligence checklist

ETFs have democratised investing for the main street investors. From plain-vanilla broad market ETFs to triple-leverage bull/bear ETFs, there is something for everyone who wants to take on a very specific exposure. Unlike most mutual funds which may have a ‘privilege’ share class for the institution investors, ETFs have no such settings. It is a level playing field for everyone, from big-shot investors and traders who can move the markets with their trades, to the main street investors. Double-edge sword? For the retail investors, it is akin to a kid stepping into a candy store. The world is your oyster....

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Weekly Highlights 10 Nov: Value investing making a comeback?

Weekly Highlights #1 Value making a comeback? ‘Experts’ claimed that the market may favour value over growth in the coming quarters. A self-fulfilling prophecy? While it is true that value has underperformed growth for the past decade or so, there is no guarantee that growth will continue to outperform value or vice versa in the future. Remember that investing is a marathon. Fads come and go. https://www.cnbc.com/2019/11/08/jp-morgans-quant-guru-says-the-rotation-into-value-will-continue.html https://www.cnbc.com/2019/11/08/value-stocks-get-an-endorsement-from-a-long-time-hedge-fund-skeptic.html For more information on thematic ETFs that look into factors such as growth and value as an investment proposition, see: Should smart-beta ETFs have a spot in your investment portfolio? #2 US...

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‘Heartbeat Trades’ & ETFs: The elusive world of tax optimisation

There are many benefits when it comes to investing in an ETF, such as transparency, intra-day liquidity, tax efficiency and etc. Tax efficiency is a big one and not many people may know the inner workings of an ETF to understand why an ETF is more tax-efficient than a mutual fund. This article is set to explain how ETFs managed to be more tax-efficient than mutual funds from an operational/trading process called ‘heartbeat trades’. Background When a fund sells a stock that has appreciated in value, this will trigger a capital gain tax bill for its shareholders. However, the...

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Weekly Highlights 3 Nov: US Federal Reserve slashes rate again – 3rd time’s a charm?

#1 More ‘fun’ times ahead?  US Federal Reserve slashes the lending rate from the current range of 1.75% – 2% to, 1.50% – 1.75%. It is the third time this year that the Federal Reserve slashes the rate. Coupled with the strong October jobs data, the US markets break new highs. https://www.cnbc.com/2019/10/30/when-the-fed-cuts-rate-three-times-and-pauses-history-shows-it-works-out-great-for-stocks.html https://www.cnbc.com/2019/11/01/dow-futures-open-nonfarm-payrolls.html   #2 Trump getting impeached?  This is getting real. With a tally of 232 to 196, US lawmakers voted in favour of progressing to the next stage of the impeachment process. https://www.channelnewsasia.com/news/world/us-house-formalises-trump-impeachment-process-in-landmark-vote-12051722 https://www.reuters.com/article/us-usa-trump-impeachment-televised-analy/democrats-decision-to-televise-trump-impeachment-hearings-could-prove-politically-perilous-idUSKBN1XB50K   #3 China and the US finally in-sync? Apparently, China and the US...

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Direct indexing: The next chapter for ETFs?

ETFs have come a long way since the launch of State Street S&P 500 Trust ETF (SPY) in 1993. ETF is here to stay and in my opinion, it is just a matter of time before the mutual fund structure becomes completely obsolete. I am not saying that mutual funds will be completely eradicated from the face of Earth, instead what I am saying is that the next generation of investors will be talking about ETFs, not mutual funds. To me, ETFs represent a more efficient investment vehicle than the legacy structure, i.e. the mutual fund structure. For more...

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Weekly Highlights 27 Oct: US Government overspend! No surprise!

#1 The US government overspend once again!  To be honest, not really a big surprise. When you have a President that is hell-bent on making sure that the economy is on the upward trajectory to ensure that he gets re-elected, no expenses are spared I guess. Despite having a wider tax base and an economy that has an unemployment rate at a near 50-year low, US budget deficit stands at $984 billion, about 4.6% of its GDP. https://www.reuters.com/article/us-usa-economy-budget/u-s-governments-annual-budget-deficit-largest-since-2012-idUSKBN1X426T   #2 TESLA announced profitability for the first time in 3 quarters Earlier this year, a couple of prominent analysts came...

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The creation and redemption mechanism of ETFs!

As retail investors, we can take things for granted at times. While ETFs have democratised investing for the main street investors, investing/trading in ETFs would not be possible if not for the market participants greasing the wheels behind the scenes. More specifically, I am referring to the creation and redemption process of ETFs’ shares. In this article, I will highlight the key roles that market makers and authorized participants have within the ETF industry and how they shaped the ETF trading process. ETFs’ Liquidity & Markets Liquidity Liquidity is the ease of conversion from cash to asset securities and...

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Weekly Highlights 20 Oct: Facebook’s Libra faces uphill tasks

Weekly Highlights#1 Facebook’s Libra faces new challenges  Beside getting rejected from Visa and Mastercard recently, a new wave of criticism comes from the German Finance Minister claiming that the creation of a world currency or Facebook’s Libra, in this case, should be prevented and at the same time, claiming that the creation of a world currency is the responsibility of democratic states. Hypocritical much? But the concern of stablecoins being used as a tool to money laundering and terrorist financing is very real. The reach and anonymity of Facebook’s users could potentially offer bad-doers the perfect tool for their...

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SPIVA: Doomsday for active fund managers?

If there is ever a financial research piece that active managers would love to banish to the deep depths of hell, it would be the SPIVA Scorecard. SPIVA stands for S&P Indices Versus Active and the SPIVA Scorecard is a research paper published by S&P DJI that compares the performance of actively managed funds against their appropriate benchmarks. The results are not exactly rainbows and sunshine for the active fund houses. Pretty much a train wreck. The ultimate objective of an active fund is to outperform its benchmark aka generating alpha. Key takeaways from end-2018 SPIVA report  For the...

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Weekly Highlights 13 Oct: How US brokers survive with 0 commission

#1 Idle cash saves US brokers For the past month or so, it has been an absolute bloodbath for major US brokerages. From Charles Schwab to Interactive Brokers, major US brokerages are offering commission-free trading. Apparently, the key to survival in the new world is the idle cash, i.e. the cash sitting in your brokerage accounts. One source of revenue for brokerages is to loan out clients’ cash to the market. As of August 2019, the idle cash sitting in Schwab clients’ account total to about $3.7 trillion. And as of 2018, Schwab makes around $10.1 billion in net...

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The peril world of Leveraged ETFs!

What if I tell you when the index/market moves DOWN by 1%, your investments could potentially move UP by 3%. Welcome to the world of Leveraged ETFs!!! What is Leveraged ETFs? Leveraged ETFs are financial products that give an investor amplified market exposure. The magnitude of the amplified market exposure varies from double leveraged to triple leveraged. As the name implies, double leveraged would give an investor double the market exposure. When the market increases by 1%, the double leveraged ETF increases by 2%. Similarly, triple leveraged would give an investor triple the market exposure. Not all leveraged ETFs...

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