CPFIS Review - CPF-SA Investments
I promised a review of my CPF investments in my investment strategy for 2012 post earlier in the year. So, here it is and I will start off with a review of my CPF Special Account (i.e. CPF-SA) investments.
Background
According to the CPF Board, “given the higher risk-free interest rate on the Special Account, it is better to be more conservative than to subject these savings to the uncertainty of CPFIS returns.” Savings in the Special and Medisave Account (SMA) currently earn either 4% or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, whichever is the higher. The CPF Board also announced that the minimum floor rate of 4% in the Special, Medisave and Retirement Account (SMRA) will be extended to the end of 2012.
An additional 1% interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA). The additional interest received on the OA will go into the member’s SA or RA to enhance his retirement savings.
From 1 July 2010, the first S$40,000 of CPF Special Account (SA) balances will no longer be allowed to be used for investments.
Initial Strategy
My initial plan is really to invest all my CPF-SA monies into balanced funds, since CPF-SA is locked in for very long term, has limited use and therefore one can be aggressive. Therefore, I beg to differ with the statement from CPF Board that it is better to be conservative.
Since pure equity funds and stocks cannot be invested using CPF-SA monies, balanced funds are the next best option. Bond funds and Protected funds are out since they will not be able to beat CPF-SA interest rate. Lifestyle funds like UOB GrowthPath series comes with automatic adjustment of asset allocation as one ages, which I rule out because I prefer to do my own asset allocation. I leave out ILPs as they come with higher sales charges. I can get better sales charge by investing in unit trusts at online platforms.
Fund Selection
The next part is to decide what funds to invest. I looked at all the balanced funds available for CPF-SA investment and selected 3 of them. Two are Asian focused balanced funds and another global balanced fund. These funds are classified as Medium to High Risk under CPFIS Risk Classification. The reason being I wanted to be aggressive, and Asian focused balanced funds should deliver better return than a global one.
1 PineBridge International Funds (Formerly AIGIF) - Acrons of Asia Balanced Fund. This is the most aggressive fund in the CPF-SA investment list. Its expense ratio is a bit on the high side, but it has a huge fund size of more than $1 Billion. I like the fact that they are investing in growth companies in Asia, and can even go above 70% on the equity side. They can also invest in preference shares as well. Most of their bond allocation are in SGD denominated papers, so minimum currency risk on the bond portion. Being aggressive, they can under-perform badly during market downturn, but they will be able to out-perform most of the balanced funds when markets are doing well.
2. Eastspring Inv (Formerly Prudential) Asian Balanced Fund. This fund complements PineBridge International Funds - Acrons of Asia Balanced Fund because it invest in Asian equities too, but not as aggressive as 1. It will mostly track the index closely, which means it will not under-perform the market badly during downturn. Its bond portion are in US papers, and therefore there is currency risk here. It is a typical balanced fund, with mostly 50%:50% equity:bond allocation. This is a safe fund if you want market return, without being too aggressive or defensive. It has one of the lowest expense ratio in the CPF-SA investment balanced fund list.
3. Templeton Global Balanced Fund. This fund is a global balanced fund, with focus on value large cap. Its bond portion is invested globally. It is also your typical balanced fund, with mostly 50%-60% allocation in equity. Its expense ratio is quite high last time but has since reduced it subsequently by eliminating its feeder fund structure.
Analysis
Since I have started investing in these 3 funds, Templeton Global Balanced Fund have disappointed me. The other two funds had performed up to my expectation.
What Has Gone Wrong
I did not introduce an Asian Balanced value focused fund like First State Bridge to complement my existing growth oriented Asian balanced funds. This has resulted my CPF-SA investment portfolio to be a little bit more volatile than I would have liked. Templeton Global Balanced Fund is supposed to exhibit the stability, but it has disappointed me as far with its performance and volatility.
Also, I should not have rule out UOB GrowthPath series as they come with low expense ratio and low volatility. Given a choice, I would have replace Templeton Global Balanced Fund with either DWS Premier Select Trust 0r UOB Growth Path 2040.
Action Plan
There is not much I can do now. I cannot switch funds because of the increasing CPF-SA investment limit. If I sell one of the funds, I will not be able to re-invest the proceeds anymore since I will have to maintain at least $40K in my CPF-SA. I also cannot invest using my CPF SA funds anymore since I have not reach the investment limit in my CPF-SA. I guess for my remaining funds in CPF-SA, I will have no choice but to just leave it there and earn the CPF-SA risk free interest rate.
PS: Most of my CPF-SA investments are in Non-IA status, which explains why the $40K restriction comes in. If you have invested using IA status, then you can perform the switch even if your CPF-SA has less than $40K. Thanks to Sanye for posting the question.
Labels: CPF
posted by ghchua at 6:17 AM
4 Comments:
Hi GhChua,
I think you can still do switching of fund if your investment is und IA Status, because the money dose not go back to CPF immediately when they do the selling for you.
Hi Sanye,
Unfortunately, most of my funds invested using CPF-SA are in non-IA status. They were bought donkey years ago when CPF Board decided to allow CPF-SA to invest in funds.
Only a small portion of it are in IA status, which is not the fund that I wanted to switch.
Hi Alucard,
Yes. I have bought Pine Bridge Acorns of Asia Balanced Fund for my CPF-SA. As you might have noticed, it is my biggest position among my 3 CPF-SA unit trusts invested.
Yes, I did considered First State Bridge (a value driven balanced fund) at the point in time when I started investing using CPF-SA funds as I have said in this blog post. It was a mistake as I have chosen Prudential Asian Balanced Fund instead for growth rather than value.
Looking at 10 years performance do makes sense but do note that if one is investing, it is not buy once for 10 years and forget about it. Rather, it is about consistently investing in regular intervals so you should also look at the fund performance in 1 year, 3 years etc.
For CPF-SA investment, I think I have tried my best due to the limited number of funds available that could be invested. We could not even invested in equity funds or stocks. The selection is limited to mainly bond funds, balanced funds and maybe some conservative lifecycle funds.
So, you might say I should dispose those underperforming balanced funds and reallocate? As I have said in this blog post, CPF Board had already increased the amount to be retained in CPF SA before one can invest and the amount had increased throughout the years. I have only two choices basically - i.e.
1. Sell the funds and return the monies back to CPF SA to earn guaranteed interest and participate in their CPF Life scheme in future.
2. Continue to hold onto the funds and hope for better performance in future and continue to maintain those monies outside CPF SA and not participate in CPF Life scheme in future.
I still have not made a decision yet but I do prefer 2. at this moment because CPF Board changes their rules often and you don't know what changes they could make in future.
Hi Alucard,
Sorry, but I don't have the ROI numbers. For Prudential Asian Balanced Fund (now known as Eastspring Asian Balanced Fund), I think they underperformed in short and long term. For Templeton Global Balanced, their performance is ok lately. I think this is because previously, they are using a feeder fund structure which incurred higher expenses. With the new CPF rule having limited a fund's expense ratio in order to be included under the CPF Investment Scheme, they have removed the feeder fund structure and now directly invests in their underlying fund, resulting in lower expenses. Going forward, I would expect Templeton Global Balanced to do better.
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