Managing my ILP Funds

(Picture from Manulife. Because I love fountain pens ^^")

As you have might read in one of my prior post, I do own an ILP with Manulife where I use it to benchmark my performance.


At my current premiums, it would take until about 2030 to breakeven due to charges such as:

• Premium allocations (for the agent to make, Manulife 25/50/60 for the 1st 3 years)
• Insurance charges (depends on what you insure, preferably keep it apart, as the premiums eat into your investments as you age)
• Policy Fee ($30)
• Management Fees
• Sales charge (5% of premium paid)

Also, it is good to note that allocation into ILP funds must be managed and reviewed from time to time.

I initially picked these three:

• Golden Balanced Growth Fund (which is ~60% Golden Singapore Growth Fund and ~40% Golden International Bond Fund)
• Golden International Bond Fund
• Manulife Asian Small Cap Equity Fund

The initial rationale was for a safe growth with some amount capital appreciation.


I'm reading a couple of books recently on investing in funds, so I thought I'll share my view on managing/picking the funds. Thankfully, unlike the US, our taxation laws are much simple, so there's not that many considerations.

I'm looking for fund with low costs (compounding costs kills, but there's a limitation to the choices I got, so I'll make do), funds which are close to indexes, as well as looking to diversify internationally, as my other portfolios are heavily focused in Singapore and the US.

I excluded "no sales loads" because there isn't one (all are priced at 5%) and minimal portfolio turnover (because I don't know).

Performance based on the prior 5 years are not very relevant to gauge the future performance, especially since we are nearing the end of the long bull market.

I'm removing all the bond funds because SSB is going to be released and bond laddering would be a better option, since I prefer to DIY, saves on the fees too. (they range from 0.9-5% p.a. in performance, which is standard of bonds, ~3-5%).
I personally prefer short term government bonds (3-5 years).
I skipped the Golden International Bond Fund as I don't really understand the fund strategy.

Updated Portfolio Allocation

After reviewing a long list of funds that are available (and burning my weekend in the process, I actually googled each of the underlying funds and compared to indexes), the pie chart shows my updated list.

• Japan Growth Fund (Japan Large Cap)
• Sharpie Ratio: 1.10
• Alpha: -0.95%
• Beta: 1.03
• R-Squared: 94.46
• Expense Ratio: 1.70%
• Active management strategy to balance index components with non indexed components to achieve greater returns. (Skeptical, but I'll see how it goes)
• Golden Regional China Fund
• Sharpie Ratio: 0.97
• Alpha: -1.38%
• Beta: 1.01
• R-Squared: 85.58
• Expense Ratio: 1.88%
• GARP Strategy with focus on company management but with high turnover (?, GARP Strategies have usually low turnovers)
• Manulife India Equity Fund
• Sharpie Ratio: 0.91
• Alpha: 5.63%
• Beta: 0.86
• R-Squared: 90.69
• Expense Ratio: 1.76% 
• Fundamental Investing strategy with low portfolio turnover rates
• Manulife Global Emerging Markets Fund
• Sharpie Ratio: 0.32
• Alpha: -1.97
• Beta: 1.04
• R-Squared: 82.20
• Expense Ratio: 1.89%
• Fundamental Investing strategy with low portfolio turnover rates
• European Equity Fund (Europe Large Cap Growth)
• Sharpie Ratio: 0.78
• Alpha: -3.21%
• Beta: 0.94
• R-Squared: 89.05
• Expense Ratio: 1.90%
• Fundamental Investing strategy with low portfolio turnover rates

I'm using Morningstar trailing 3 years data (sharpie ratios, alpha, beta and R-Squared).
Quick explanation:
- Sharpie Ratio refers to measuring risk-adjusted performance. Generally, higher is better, shows the fund manager is good at managing the fund returns and risks (theoretically).
- Alpha refers to risk-adjusted return of active management on an investment. So 1% is the fund performing 1% better than the benchmark.
- Beta refers the risk compared to the general market. For a value <1, it means it is less risky compared to the general market, vice versa >1 means it is more risky. So for an example, if the value is 1.2, it means that it is 20% more risky than the general market.
- R-Squared refers to the correlation and relationship between returns of the investment and benchmark index. Higher the R-Squared value, the stronger the correlation and relationship to an index. I prefer around 85 and above as I want to match it to an index.

Distributions are equal for all of them to spread the risk as evenly as I can (The emerging markets fund includes China and India, but I think it shouldn't be too significant).

Sadly each of those funds have a more costly management fee (1.5%-1.6%, they are CPF approved funds, which only allows generally "low" cost funds), expense ratios (~2%) and sales loads (5%) compared to my S&P500/STI ETFs (expense ratio: 0.1-0.3%). I have no control over executions (I prefer value averaging if possible), this is more of a dollar averaging approach, which is decent somewhat (though the sales charge >__<)

Hmm, maybe in the future I can look into UOB United SSE50 (China) and iShares India Index ETF, which both have expense ratios of (shockingly!) 1.4% and 1.06% respectively, but they make up in my brokerage fees (there's decent volume too).
However, the ETFs I want are either found in the US markets (exchange rate hurts), and under custodian accounts (not very good for long term).
Even if I went for the above, SSE50 is not a cash ETF which doesn't feel safe to me (I'm skeptical of derivatives). iShares India ETF is probably the only okay one I guess.

Rationale:

• All of those funds are decently close to indexes, as I prefer classic indexing as much as possible (I do prefer SPDRs indexing though).
• Diversifying outside Singapore and US (something like a DIY international fund, without this policy I might consider ETFs)
• On the bright side, I don't need to handle exchange rates unlike my ETFs where I need to convert to USD from SGD.
• If I hold it longer to after 3 years, premium allocation is 102% for 4th-6th year and 105% for 7th year and beyond. Not sure whether it will balance out (105% probably just negates the buy in sales charge).
• The amount allocated per month is ~15% of my total allocation (looking to reduce it further to 5%) compared to my Growth and Dividend portfolios, so I'm fine with a higher risk profile for these.
• Europe and Japan (are currently doing a form of printing money (QE or whatever) so I expect their businesses to improve (Europe debt is alarming but it should tide through somehow).
• China, India and Emerging Markets are growing at a steady pace (there's a possible bubble though), money is still being pumped into these countries. In the long run, I would expect them to improve loads.

That being said, for those who doesn't want much hassle in investing, as well as thinking of starting in investing, could do a regular savings plan-like investments in Singapore's STI index ETF which is currently offered by POSB, OCBC and Philips (POEMS). Paired with an SRS account, it would be awesome.

Edited on 26/5/2015 to put more data that I considered for the funds, as well as the data on ETFs we got here. 

Edited on 30/5/2015 to put fund management strategies in.