Lowyat.NET: Latest topics by Yggdrasil

Coronavirus report

Yggdrasil — Thu, 26 Mar 2020 21:21:49 +0800

I extracted data from https://www.worldometers.info/coronavirus/ focusing on China and the US.

Notice the huge difference between the 2 countries.
Do you think China's figures are believable or the cases is much much greater?

I calculated growth rate as lg(today's cases)/lg(yesterday's cases)-1

One news source pointed out the decrease in number of mobile customers in China.
I.e. many deaths leading to cancellation of their sim cards.
Here's a compilation from their 3 biggest telco carriers.

There was a decline of 1.62 million users in Jan 2020 and a whopping 19.46 million decrease in Feb 2020.
What do you guys think? Is there another reason for this decrease or you're thinking something's wrong?

Quality of Banks' Corporate Customers

Yggdrasil — Tue, 24 Mar 2020 20:36:51 +0800

Recently, I noticed that almost all companies list their principal bankers in their annual reports.
I am a strong believer that certain banking stocks are more risky with their lending while some like Maybank and Public Bank are more prudent.
So, I took time to compile a few near to bankrupt companies and take a look at their principal bankers.

I selected companies based on TradingView screener to screen high risk of default companies, extracted information from latest quarterly reports (TradingView is not entirely accurate).

Analysis:
1. Non of them have MBSB & Public Bank as their principal bankers.
2. CIMB is at most risk. I expect more impairments and lower profitability.
3. AirAsia's high debt is mostly because of leases not bank borrowings.
4. Surprisingly Maybank also has quite high exposure to these companies.

I do not have time to extract all companies. There are technically 50+ companies at risk so I needed to narrow down my search.

Now we take a look at some companies that (which I feel) have low/manageable gearing:

Seems that Maybank has customers with almost all companies.
Well managed companies seem to have Public Bank as their principal bankers.
However, it is possible that these companies are run my mostly Chinese. Hence, they prefer to go to a Chinese bank like Public Bank.

Corporate raider survey

Yggdrasil — Mon, 23 Mar 2020 16:26:07 +0800

Definition:

In business, a corporate raid is the process of buying a large stake in a corporation and then using shareholder voting rights to require the company to undertake novel measures designed to increase the share value, generally in opposition to the desires and practices of the corporation's current management.

Assume that a company has very high quality assets selling at a discount.
It's business is profitable but you feel you can profit more by asset stripping.
No single shareholder controls 51% of the company.
If you have the money to acquire 15% of the company, will you do it?

Potential risk:
1) Assets may not 'exist' on the balance sheet.
2) Directors may have defensive tactics in place to prevent a hostile takeover (e.g. warrant dividend plan).

FOREX: Instarem v BigPay v Transferwise

Yggdrasil — Mon, 28 Oct 2019 23:34:13 +0800

Analysis (6/7/2020) [Newer data]
Updated with newer data. Conclusion is slightly different
Still leaving the old data for comparison.

NOTE: I've only done this for MYR/SGD pair. MYR/USD or MYR/EUR might give different results

Conclusion (6/7/2020)
Transferwise is most expensive. Don't use it unless you don't have a choice or want 'average fee' so you don't have to calculate every time.
For amounts <RM2750, use Instarem.
For amounts >RM2750, use BigPay.

Old data below in Spoiler:

» Click to show Spoiler - click again to hide... «

ETF: Irish domiciled ETF vs US

Yggdrasil — Sat, 26 Oct 2019 21:04:50 +0800

Lazy to explain. But roarus asked something interesting here:

Stashaway said the costs of expense ratio/bid spread may outweigh the benefit of lower Withholding Tax.

True or false?

Data:

https://finance.yahoo.com/quote/VOO/history?p=VOO
https://finance.yahoo.com/quote/CSPX.L/history?p=CSPX.L

https://finance.yahoo.com/quote/QQQ/history?p=QQQ
https://finance.yahoo.com/quote/CNDX.L/history?p=CNDX.L

Methodology:

Same as previous thread using harmonic mean and geometric return.

But, I noticed something interesting. There were additional and missing data from both the US domiciled ETF and the ones listed at London Stock Exchange.
I suspect it's due to public holidays but let's find out using Google.

NOTE: 25 April 2011 is public holiday in London not in US.

NOTE: 25 Nov 2010 is public holiday in US not in London.

Total list of data removed:

IMPORTANT: Yahoo Finance does not give daily bid/ask spread data. I can only calculate which ETF gives better return. Since both track the same thing, their returns should be the same. Furthermore, bid/ask spread does not matter as everything will be 'equalled' out eventually as your transactions get higher and higher (i.e. n is very huge).

This is why I use harmonic mean. It's the same reason why there is little to low exchange rate risk when buying foreign ETFs because let's say MYR is weak and you buy less of USD ETF (1USD:MYR4.5). Some years, MYR grew stronger than USD (1USD:MYR3.5). Eventually your transactions will converge towards the harmonic mean. Possibly near 1 USD:MYR 4 depending on scenarios.

You may argue that you lose 'return' when you sell the ETF because you sell at a lower price compared to US domiciled ETF due to the wider bid/ask spread gap. This is bullshit because another person may argue that he/she has to buy at a higher price compared to US domiciled ETF due to bid/ask spread. Furthermore, some days you may queue at buy instead of buy from the seller. Some days you may buy immediately. Eventually everything will be evened out. Also, assuming efficient markets, there is unlikely to be mispricings in ETFs because the NAV can be calculated almost instantly every second and a lower priced ETF than its NAV (undervalued) will be bought up immediately until it equals the fair value.

Thus, the argument that bid/ask spread causes lower returns is untrue and any difference between the returns from US domiciled vs non-US domiciled ETFs is solely due to other factors including expense ratio/tracking error. High possibility it is the effect of higher expense ratios that is compounded for years especially since the non-US domiciled ETF is measured based on NAV. Higher expenses -> Lower NAV -> Less money that gets reinvested.

Results:

Note: I suppose the dividends have already been accounted for in the price of the ETFs on the LSE. Hence, the NAV increases as dividends are taxed, reinvested immediately and should reflect the price.

Conclusion:

What Stashaway said is true. You have an advantage buying US domiciled ETFs which have lower expense ratios. However, the gap is very small at 0.13%~0.15% in the long run.

Effect of Withholding Tax on ETF Returns

Yggdrasil — Sat, 26 Oct 2019 01:07:41 +0800

UPDATE (27/10/2019): See below

Hi everyone! I was reading on Reddit r/investing and was curious why some US people say different thing about the returns on ETFs.
I will also investigate the effect of withholding tax on long term returns applicable to most Malaysians and which ETFs is best.
Redditors (probably US citizens) have said different things about the 3 popular ETFs (NASDAQ 100, S&P 500 and Total Market Index) which I will investigate.

Feel free to critique my methodology! Feel free to ask questions and I will try to answer them too.

I will try to explain the jargons and technicality as best as possible.

Hypothesis:
1) NASDAQ 100 gives higher return on average but is more volatile. If one can stand volatility, one should buy NASDAQ 100 over S&P 500 instead.
I have seen a few Redditors saying that they will invest in NASDAQ 100 than S&P 500. For those who don't know, NASDAQ 100 is heavily on technology and hence volatility.

2) Total Market Index gives better returns than the S&P 500
A Redditor claim that he was surprised why many people would invest in S&P 500 when Total Market Index gives a higher return.
Is it true? Let's find out.

Methodology:
I will be using Harmonic Mean to calculate average cost per unit.
Why? Because when you dollar cost average ETFs or shares, you buy units.
If price is high, you buy less units. If price is low, you buy more units.

Harmonic Mean is calculated based on daily (instead of weekly or monthly) closing price.
This is to be fair and eliminates 'market timing'. I.e. not entering the market immediately but wait for a drop to buy.

I will be using Geometric return (not arithmetic return) to calculate long run returns.
What is the difference? Geometric return is the 'compounded returns' you get.
Arithmetic returns is just a simple average of the returns.
Geometric returns will only equal arithmetic returns when the returns are equal every time (i.e. 3% in year 1, 3% in year 2; like fixed deposit rate).
Note: Fund managers like to advertise their funds using arithmetic returns because it gives higher better figure (I.e. arithmetic return > geometric return).

People should use Geometric return when calculating their 'real return from a stock'.
My methodology of calculating Geometric return is using the same method above but the initial investment as the harmonic mean (average price per unit).

I will calculate the no. of years of investment with great accuracy using the formula =YEARFRAC(). This calculates the exact no. of years between 2 dates.
E.g. 10 Mar 1999 - 22 Oct 2019 is 20.6 years.

Problem: What about dividends/stock split?
It is hard for me to find the exact timing and amount of the dividends so I will compute the dividends/stock split as a difference between the geometric return using harmonic means of closing price and the adjusted closing price using the data provided by Yahoo Finance. Adjusted closing price should be the dividend/stock split gain that took place.

Data:
1) NASDAQ 100 - Invesco QQQ Trust (QQQ) [10 Mar 1999 - 22 Oct 2019]

2) S&P 500 - Vanguard S&P 500 ETF (VOO) [9 Sept 2010 - 22 Oct 2019]

3) Total Stock Market Index - Vanguard Total Stock Market Index Fund ETF Shares (VTI) [15 June 2001 - 22 Oct 2019]

Assumptions:
1) Invest the same amount of money every day into the index without increasing the investment (although you get more salary/income).

2) No money is withdrawn.

3) No attempt to time the market.

4) Returns calculated based on closing price at 22 Oct 2019.

Results:

Analysis:
1) Hypothesis #1 is true. NASDAQ 100 beats S&P 500. But they are close.

However, since S&P 500 pays out more dividends and we are taxed for this, the gap widens to 0.33% @ 15% Withholding Tax and 0.44% @ 30% Withholding Tax.

Hence, if you are subjected to Withholding Tax and can stand volatility, you are better off investing in NASDAQ 100 in the long run. This impact is big in the long-run (i.e. 20 years).

Do note what standard deviation means. It means the chances when you withdraw at anytime, your geometric return is +/- s.d. away from the mean. Will explain more later.

Sharpe ratio suggests S&P 500 is gives the best return above the risk free rate for every % of volatility but the gap becomes smaller as Withholding Tax increases (because S&P 500 pays more dividends than NASDAQ 100 and dividends gets taxed). This is the same reason why shareholders get higher return when US companies buy back stock instead of paying dividends (tax rate for dividends > capital gain).

2) Hypothesis #2 is false. Total Market Index does not beat NASDAQ 100 or S&P 500
Total Market Index is also more volatile than S&P 500. It is preferable to avoid this unless you want to get worldwide exposure to 3000 companies. This may seem to be over diversified.

3) Based on standard deviation, NASDAQ 100 is the most volatile of the 3, followed by Total Market Index and S&P 500

Recommendation:
1) If you invest only in S&P 500, try to get 15% Withholding Tax because you lose up to 0.19% in the long run (compounded effect) if you don't.
If you cannot, buy an index which gives more capital gain instead like NASDAQ 100 (lose only 0.08%).

2) The better index is NASDAQ 100 if you can stand volatility and aiming solely on returns. See my explanation below
However, this is focused on tech. If things go South, you lose more.

UPDATE (26/10/2019):
1) As user roarus pointed out that VTSAX is a mutual fund not an ETF. So I updated VTSAX with VTI. I also compare VTSAX with VTI here:

2) I made a mistake calculating the Sharpe ratio yesterday. (Accidentally divided by QQQ's volatility instead of their respective volatilities). Updated figures and recommendation.

UPDATE (27/10/2019):
1) Miscalculated Return for 30% WHT. Extracted image from wrong sheet. Updated values.