Fortune favours the bold, for now
The concept was simple. Ask an adviser to set up two portfolios - one defensive and one dynamic - and see how his picks perform over time.
David Poh, regional head of portfolio management for SG Private Banking, stepped up to the task. On November 28, 2012, Poh began tracking two portfolios that cater to two hypothetical clients.
Hypothetical client number one is Jane Du, 55, a senior business director at an insurance company, with a risk-averse investment appetite. She has three dependent children and a home mortgage which will be paid up in 10 years.
Her goal is to preserve and accumulate wealth at a steady pace for meeting her personal and family obligations. SG designed a defensive portfolio for her that aims for annual returns of 4 per cent.
Hypothetical client number two is John Koe, 33. Koe, the owner of a technology company, is willing to take risks and has an aggressive aptitude for investment. He and his wife both work and have no children. He hopes to enjoy an early retirement. SG built a dynamic portfolio reaching for 10 per cent yearly returns to suit his needs.
No actual money is invested. But the portfolios track real assets and generate real, measurable performance.
Just over two months later, Poh discusses how each portfolio has done. Both portfolios are pretty defensive. There are no crazy punts on penny stocks. All bonds are investment grade, with the exception of a bond from Road King, a toll road operator. The equity selections are biased towards large-cap, high-dividend entities.
Poh's goal with each portfolio is to preserve capital. "As we manage risk, the returns will take care of themselves," he says. In just over two months, the defensive fund is up 1.5 per cent and the dynamic plan has a gain of 3.6 per cent.
The defensive fund's biggest holdings are bonds issued by Yancoal and CapitaLand (in US dollars) and SPI Electricity & Gas and Sydney Airport Finance (in Australian dollars).
The defensive fund's top equity holding is Chunghwa Telecom, a renowned dividend payer. The other stocks are likewise large, defensive counters that grow moderately and pay reliable dividends.
Poh's dynamic portfolio is heavily skewed towards equities - 79 per cent of the fund is in stocks.
His equities portfolio again favours big dividend payers seen in the defensive fund. Chunghwa Telecom makes another appearance, as do Wharf, CNOOC and DBS. But the portfolio also dips into some of the racier mid-sized stocks, such as the cosmetics retailer Sa Sa, the Thai coal firm Banpu and Indocement Tunggal Prakarsa, a building materials firm from Indonesia. Of the batch, Poh's bet on Hong Kong's Wharf performed the best, rising 21 per cent over two months.
Poh says that mainland officials earlier in the month flagged the possibility of opening mainland money to invest in Hong Kong through an expansion of the qualified domestic institutional investor programme. Blue chip stocks have risen strongly on the view that mainland investors will buy these first as they start putting into Hong Kong.
"Big, visible blue chip stocks should do well," says Poh. Bangkok Bank performed well, climbing 19 per cent over the two months, and Jiangsu Expressway rose 14.8 per cent. KT&G dropped 6.2 per cent.
Bonds comprise only 13 per cent of the total dynamic portfolio, and are there to provide a bit of ballast to returns. Hong Kong property bonds make up 45 per cent of the debt, giving a bit more juice to returns.
Follow the progress of Battling Portfolios on the SCMP money page at scmp.com/business/money