What’s in my Portfolio?

What I do: Keep reading for the answer! Don’t copy this portfolio as it is matched to my personal beliefs, convictions, and situation!

Portfolio allocation

1. AVGS (Avantis Global Small Cap Value UCITS ETF)
   • Weightage: 5/12
2. JPGL: JPMorgan ETFs (Ireland) ICAV – Global Equity Multi-Factor UCITS ETF
   • Weightage: 5/12
3. XDEM: Xtrackers MSCI World Momentum UCITS ETF 1C
   • Weightage: 1/12
4. DGSD: WisdomTree Emerging Markets SmallCap Dividend UCITS ETF
   • Weightage: 1/12

Why did I choose this portfolio allocation?

A portfolio must match your willingness, ability, and need to take risk.

I have a high willingness, ability, and need to take risk.

Hence, I take a very high level of risk. Generally, we load up on risk by having more equities and less bonds/cash.

I’m 100% equities.

But not really. CPF savings and my own ability to generate income means I have a lot of safer, lower risk assets in my human capital.

Other sources of risk – factor investing

I pursue other compensated sources of risk. These would be risks that are proxied by value, profitability, and smaller size companies.

These are risky. They can underperform for more than a decade. They might co-vary with bad states of the world. They are hard to stick with. They might not even exist.

I’m okay with all of that. As such, I tilt heavily towards value, more profitable, and smaller companies.

Very few other people would be okay with this. It’s why the premiums can exist.

Same for the equity risk premium. If it was easy to stick with equities, then everyone would buy them and we wouldn’t have an equity premium puzzle.

Investors are also terrifically bad at timing their investments. They pull out at market lows and re-invest only when markets have recovered. Sell low, buy high.

My sins

In investing, it’s okay to sin a little. It’s like a cheat day for your diet.

A little bit of speculation is okay.

A little bit of market timing is okay.

A little bit of country-weight variation is okay.

We are only human. Sinning a little helps us stick to our overall strategy.

Without further ado, these are my sins:

1. Investing in momentum.
   • I believe what goes up keeps going up, at least within a 2-12 month period. I am a psychologist. I firmly believe in herd mentality and irrational behaviour.
   • Reasons to avoid momentum: Returns = risk, and we don’t have a risk story for momentum. It is also a high turnover strategy, which means higher costs and fees.
2. Deviating from market-cap country and sector weights.
   • In my pursuit of the characteristics above, I deviate from market-cap weights for countries and sectors. In particular, my funds underweight the technology and real estate sectors, and China as a country. They overweight sectors like financials and energy that have companies that display the characteristics associated with value, profitability and smaller size.

What I don’t sin in

I stick to market cap ratios for developed and emerging markets.

I don’t market time or switch between funds based on market conditions. I only do so if a new fund targets my desired characteristics more effectively.

I use low-cost, broadly diversified funds.

I don’t use active management. Yes, these are counted as active funds. But they don’t invest based on manager discretion. Instead, they use a rules-based, systematic approach to pursue characteristics like lower price to book or price to sales ratios.

Lastly, I keep investing consistently month after month.

Thanks for reading.