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The term “asset allocation” means different things to different people in different context. Here are some versions of asset allocation:

1. Strategic asset allocation

2. Tactical asset allocation

3. Drifting asset allocation

4. Balanced asset allocation

5. Dynamic (insured) asset allocation.

While strategic asset allocation is concerned with establishing the long-term asset mix of a portfolio, the other types of asset allocation refer to what the portfolio manager does in response to evolving market conditions.



1. Strategic Asset Allocation.

The strategic asset allocation refers to the long-term ‘normal’ asset mix sought by the investor (or portfolio manager) to achieve an ideal blend of risk and return. It may be established with the help of either an informal or a formal approach.




Informal approach.

Essentially, it involves three broad steps:

1. Subjective assess the risk tolerance as ‘low’, ‘medium’, or ‘high’.

2. Define the investment horizon as ‘short’, ‘intermediate’, or ‘long’.

3. Establish the optimal strategic asset allocation using some ‘rule of thumb’.




Formal approach.

This involves the following steps:

1. Develop quantitative forecasts of expected returns, standard deviations, and correlations of the two asset categories, viz. stocks and bonds.

2. Define the efficient frontier which contains all the efficient portfolio options available to the investor.

3. Specify the utility indifference curves reflecting the risk disposition of the investor.

4. Choose the optimal portfolio (asset allocation). The optimal portfolio is found at the point of tangency between the efficient frontier and a utility indifference curve.



2. Tactical Asset Allocation.

Tactical asset allocation involves a conscious departure from the strategic or normal asset mix based on rigorous and objective measurement of value. The objective of tactical asset allocation is to enhance the performance of the portfolio through an opportunistic shift in the asset mix in response to changing patterns of reward in the capital market. The distinctive features of tactical asset allocation are as follows:

· It is guided by objective measures of prospective values like earnings yield and yield to maturity. Hence it is essentially a value-oriented approach.

· It is inherently contrarian in nature as it involves buying after a market decline and selling after a market rise.

Note that tactical asset allocation entails market timing. The only difference between the traditional market timing and tactical asset allocation (a modern version for market timing) is that the latter is supposed to be analytically disciplined and based on objective measures of value.



3. Drifting Asset Allocation.

This policy advocates that the initial portfolio be left undisturbed. It is essentially a ‘buy and hold’ policy. Irrespective of what happens to relative values, no rebalancing is done.

For example, looking at the payoff for a ‘buy and hold’ policy if the initial stock:bond mix is 50:50:

· The value of portfolio is linearly related to that of the stock market.

· While the portfolio value cannot fall below the value of the initial investment in bonds, its upside potential is unlimited.

· When stocks outperform bonds, the higher the initial percentage in stocks, the better the performance of the ‘buy and hold’ policy. On the other hand, when stocks under-perform bonds, the higher the initial percentage in stocks, the worse the performance of the ‘buy and hold’ policy.



4. Balanced Asset Allocation:

A balanced asset allocation policy calls for a periodical rebalancing of the portfolio to ensure that the stock-bond mix is in line with the long-term ‘normal’ mix. Put differently, this policy calls for maintaining an exposure to stocks that is a constant proportion of portfolio value. If the desired constant mix of stocks and bonds is say 50:50, this policy calls for rebalancing the portfolio when relative values of its components change, so that the target proportions are maintained (constant mix policy). Thus, this policy, unlike the ‘buy-and-hold’ policy is a ‘do something’ policy’.



5. Dynamic (or Insured) Asset Allocation

Dynamic (or insured) asset allocation involves shifting the asset mix mechanistically in response to changing market conditions. For example, the fund manger may follow a constant proportion portfolio insurance (CPPI) policy. The CPPI policy calls for ‘selling stocks as they fall and buying stocks as they rise’. This implies that this policy is the opposite of the constant mix policy which calls for ‘buying stocks as they fall and selling stocks as they rise.’

Comparative Evaluation

While tactical asset allocation calls for discretionary shifts, the remaining three kinds of asset allocation, viz. the drifting asset allocation, the balanced asset allocation, and the dynamic (or insured) asset allocation involve asset-mix changes in accordance with a fixed rule. It may be instructive to compare them.

(Basically, the drifting asset allocation = ‘buy and hold’, the balanced asset allocation = ‘buying stocks as they fall and selling stocks as they rise’, and the dynamic (insured) asset allocation = ‘selling stocks as they fall and buying stocks as they rise’.)

The payoffs associated with the drifting asset allocation policy (or buy and hold policy), the balanced asset allocation policy (or constant mix policy), and the dynamic asset allocation policy (typified by the CPPI policy) are represented by a straight line, a concave curve, and a convex curve respectively.

Looking at the graphs of payoffs associated with these various allocation policies, suggests that if the stock market moves in only one direction, either up or down, the best policy is the CPPI policy and the worst policy is the balanced asset allocation policy. In between lies the drifting asset allocation policy.

However, if the stock market reverses itself frequently, rather than moving in the same direction, the balanced asset allocation policy tends to be superior to other policies.

To illustrate this point, let us look at the payoff from an initial investment of 100,000 when the market moves from 100 to 80 and back to 100 under the following three policies.

1. A drifting asset allocation policy under which the initial stock-bond mix is 50:50

2. A balanced asset allocation policy under which the stock-bond mix is 50:50

3. A CPPI policy which takes the form: investment in stocks = 2 (Portfolio value – 75,000)

The performance features of the three policies are summarized below:

1. Drifting Asset Allocation Policy (‘buy and hold’)

· Gives rise to a straight line payoff

· Provides a definite downside protection

· Performs between the constant mix policy and the constant proportion portfolio insurance policy.

2. Balanced Asset Allocation Policy (‘buying stocks as they fall and selling stocks as they rise’)

· Gives rise to a concave payoff drive

· Does not provide much downward protection and tends to do relatively poorly in up market.

· Tends to do very well in flat, but fluctuating, markets.

3. CPPI Policy (‘selling stocks as they fall and buying stocks as they rise’.)

· Gives rise to a convex payoff curve.

· Provides good downside protection and performs well in up market.

· Tends to do very poorly in flat, but fluctuating, markets.

Why Various Policies Coexist

As the market advances, investors’ wealth increases but prospective returns diminish; likewise, as the market declines, investors’ wealth decreases but prospective returns improve. Investors broadly display four kinds of responses to these changes:

A. Some investors are unaffected by fluctuations in wealth and their risk tolerance remains the same. They are the true long-term investors. When the market advances and prospective stock returns diminish, these investors increase their exposure to bonds. On the other hand, when the market declines and prospective returns increase, these investors increase their exposure to stocks. These investors naturally resort to tactical asset allocation (contrarian - buying after a market decline and selling after a market rise).

B. Other investors are mildly affected by changes in wealth. If their wealth increases, in the wake of a market advance, their risk tolerance too increases, albeit slightly. Similarly, a market decline diminishes their risk to tolerance, though slightly. These investors naturally prefer balanced asset allocation (constant mix policy - ‘buying stocks as they fall and selling stocks as they rise’).

C. Still another class of investors displays a somewhat greater sensitivity to recent changes in wealth. As the market rises, their risk tolerance increases and they feel no need to decrease their exposure to stocks, despite diminished prospective returns. Likewise, when the market falls, their risk tolerance diminishes and they feel no need to increase their exposure to stocks. These investors are the natural candidates for the policy of drifting asset allocation (buy-and-hold).

D. Finally, there is a class of investors which reacts very sharply to recent market movements. If the market rises, their risk tolerance increases sharply and they want to increase their exposure to stocks, notwithstanding the diminished prospects. If the market falls, their risk tolerance falls sharply and they want to diminish their exposure to stocks. These investors are natural candidates for a policy of dynamic (or insured) asset allocation which says “Buy after a market rise and sell after a market fall”.

Therefore, the risk tolerance of different classes of investors varies in response to recent returns. Thus we find that there are natural candidates for tactical asset allocation, balanced asset allocation, drifting asset allocation, and dynamic (or insured) asset allocation. Just as tactical asset allocation is right for some investors, dynamic asset allocation is right for others.



Reference: Investment Analysis and Portfolio Management by Prasanna Chandra (Tata McGraw Hill)

OD atau Overdraft facility adalah sejenis pinjaman atau pun loan, tetapi ianya berbeza dengan jenis-jenis pinjaman yang lain seperti housing loan, car loan dan sebagainya. Ini kerana OD sebenarnya adalah satu kemudahan pinjaman yang di 'standby' kan oleh bank dan tidak semestinya digunakan oleh pelanggan.

Ciri-ciri Over Draft (OD) :-

1. Mesti digunakan bersama current account atau Akaun Semasa (Guna cek)

2. Selalunya memerlukan cagaran samaada dalam bentuk hartanah atau dalam simpanan tetap. Kalau nak cepat dapat boleh guna simpanan tetap atau Fixed Deposit (FD) atau Amanah Saham Bumiputera (ASB)

3. Jumlah OD yang diberi bergantung kepada nilai cagaran dan juga kekuatan kewangan pelanggan. Rekod dengan bank juga amat penting. Oleh itu jika anda masih baru dengan bank dan kedudukan kewangan (Dari segi gaji, tanggungan atau keuntungan syarikat) masih lemah dan anda letak Fixed Deposit sebanyak RM10,000 maka anda mungkin dapat sama nilai i.e OD juga RM10,000. Ini dipanggil One To One Basis.

Kalau anda dah lama dengan bank tu, kedudukan kewangan baik, rekod pembayaran pinjaman sebelum itu baik maka anda akan dapat lebih dari apa yang anda cagarkan. e.g anda letak Fixed Deposit RM10,000 mungkin dapat RM20,000 kemudahan OD.

4. OD boleh dipohon oleh pelanggan individu dan syarikat.

5. Persamaan dengan jenis loan yang lain ialah kemudahan ini dikenakan Faedah. Faedah biasanya diletak berdasarkan BLR atau Base Lending Rate. BLR ini merupakan kos untuk bank memberi pinjaman kepada pelanggan mereka.

Oleh itu faedah keatas OD anda mungkin akan dinyatakan dalam bentuk :-

Kadar faedah OD = BLR + 3
kalau BLR semasa ialah 12% maka
Kadar faedah OD anda = 12% + 3% = 15%


Anda juga perlu ingat yang BLR boleh berubah dan jika BLR naik ke 15% maka kadar faedah OD anda juga naik menjadi 18% (15% +3%)

Sila semak juga kadar faedah OD itu dikira bagaimana, sama ada:-

1. Flat rate (Macam pinjaman kereta)
2. Monthly rate
3. Daily rate

Jenis-jenis rate diatas akan mengenakan faedah yang berbeza. Walaupun ketiga-tiga jenis kadar diatas adalah 7% setahun tapi pengiraannya berbeza. Yang paling mahal ialah Flat rate.

6. OD juga boleh digabungkan dengan Housing Loan - Sebagai contoh jika anda ambil pinjaman perumahan sebanyak RM100,000 dan anda dah bayar RM40,000 dan baki pinjaman tinggal RM60,000 maka bank akan bagi anda OD sebanyak RM40,000 tertakluk kepada nilai pasaran rumah anda itu. Ini bergantung kepada bank sebab bukan semua bank menawarkan pinjaman sebegini.

7. Nilai pasaran cagaran anda boleh memberi kesan kepada OD anda. Jika anda gunakan tanah anda untuk mendapat OD sebanyak RM100,000 tetapi di masa hadapan nilai tanah anda jatuh dibawah RM100,000 maka jika anda dah guna sepenuhnya OD anda maka anda kena selesaikan perbezaannya.

Contoh:
1. Amount OD diluluskan - RM100,000
2. Nilai pasaran cagaran - RM90,000
3. Jumlah OD yang anda dah dan sedang guna - RM100,000
4. Jumlah kena bayar serta merta kepada bank - Jumlah OD dah guna - Nilai cagaran
= RM100,000 - RM90,000

Jika anda tak gunakan OD anda hingga maksima maka bank akan turunkan amount OD yang boleh anda gunakan itu.

8. Permohonan untuk OD agak sama dengan loan-loan lain terutamanya jika anda menggunakan cagaran dalam bentuk hartanah seperti rumah dan tanah. Jika anda gunakan FD anda atau sijil ASB dan hanya mohon OD sehingga 100% nilai FD atau ASB anda maka permohonan adalah lebih cepat dan mungkin boleh terus diluluskan oleh Pengurus Bank cawangan anda memohon itu. Ini kerana OD anda tu tidak mendatangkan apa-apa risiko kepada bank.

Untuk kemudahan OD yang dipakej bersama pinjaman perumahan anda mungkin tak perlu apply kerana ianya diberi secara pakej dengan pinjaman perumahan anda itu.

9. Kadar feadah OD akan dikenakan kepada jumlah OD yang anda gunakan sahaja. Jika tak digunakan tak ada feadah yang dikenakan.

10. Bagaimanapun kebiasaannya bank turut mengenakan Commitement Fee untuk jumlah OD yang tak digunakan. Ini adalah kerana walaupun anda tak guna lansung OD tu tapi bank telah pun 'standby' kan jumlah OD anda itu dan menunggu untuk anda gunakan.

11. Biasanya kadar faedah OD lebih rendah dari kadar faedah kalau anda gunakan kemudahan Cash Advance melalui Kad Kredit.

12. Kemudahan OD juga boleh mengelakkan dari anda mengeluarkan cek tendang sebab jika anda keluarkan cek RM10,000 tapi dalam akaun anda cuma RM8,000, baki RM2,000 yang tak cukup tu akan secara otomatik diambil dari klemudahan OD anda itu.

Kemudahan OD amat berguna jika kita manfaatkanya tapi jangan salah guna sebab sama seperti penggunaan kad kredit ianya boleh membebankan jika terlebih atau tersalah guna.

Kelebihan OD ni ialah ianya satu standby facility dan jika anda tak guna maka anda cuma perlu bayar sedikit sahaja fee untuk maintain the facility dan jika anda sesak nak pakai duit maka anda tak perlu pening-pening nak pakai kad kredit atau lagi teruk pinjam dari Along.

Why do you NEED to invest? Do take note that the question is not, “Why do you WANT to invest?” What’s the difference here?


Here’s my answer to both questions above…

The reason I WANT to invest is to gain a strong, positive cash flow that is capable of providing me financial freedom in whatever market conditions.
The reason I NEED to invest is to cope with personal, family, Malaysia and world inflation rate.


Why is this so?

Malaysia’s inflation rate
I am living in Malaysia. Obviously, I need to ensure that my investments cater for my country’s inflation rate. Malaysia’s inflation rate is normally at about 2% to 4%.
Example: How much shall a cup of coffee cost in 20 years to come (future), now (present) and 20 years ago (past)?

World inflation rate
Because of globalization, the world is becoming a ‘small’ place. To a certain extent, we do need to consider this too. This would be more evident for constant vacationers.
Example: How much increase in a cup of coffee would be when you visited country X 20 years to come, now and 20 years to ago?

Personal inflation rate
The personal inflation rate can easily range from 6% to 20% or even more. This is the most worrying one as once you have maintained a certain standard of lifestyle, it is difficult to reduce the standard. Huge amount of ROI need to be obtained to ensure similar lifestyle in the future.
Example: 20 years ago, drinking a cup of coffee in a ‘kopitiam’. Now, drinking gourmet coffee in Starbucks or Coffee Bean. How about in the future?

Family inflation rate
Once you started a family, inflation rate would slowly rise. Inflation rate varies depending on your family lifestyle and goals.
Example: 40 years ago, a certificate/diploma is sufficient. Now, a degree is only sufficient. PhD is only sufficient in 40 years to come?

Please take note that different people have different reasons... The above are based on my point of view...

GSPA is an account that allows individual customers to invest in gold in a convenient, more secure and cheaper way.

GSPA is one of the best ways for a customer to build up a personal gold portfolio by purchasing small amounts of gold on regular basis over a period of time. This "cost averaging" will ensure that the total gold investment will be acquired at the average gold price.


What are the benefits of having a GSPA?


1-It is secure, being introduced by the country's largest bank, 100% backed by physical gold and in collaboration with the World Gold Council.

2-It is cheaper as the gold prices quoted will be pegged to international gold prices without the usual additional charges.

3-Customers can invest in small amounts at a time i.e. minimum 5 grams.

4-There are three flexible withdrawal options i.e. in Ringgit, Gold Wafers or Gift Gold Certificate.

5-There is opportunity for capital gain if the gold price appreciates.
Gold can be a hedge against inflation.



Internationally, the gold price is quoted in US Dollar per ounce. You will make a capital gain if the gold price appreciates.

Why interest is not paid for GSPA?

When a customer purchases gold through GSPA, this is recorded into a passbook. The Bank actually keeps the gold in safe custody for the customer and as such interest is not paid.
The Bank will charge the customer an administrative fee for this service at 1/4% p.a. on the highest gold balance per month.


When is the right time to purchase gold?
The right time would be when the gold price is low.


If you interested in GSPA, kindly contact selected banks in your locality.

My recommendation: For maybank's gold saving, the buy/sell spread is too big. For better spread, open OUB account in Singapore, the spread per gram of the 999.9 gold is only 0.10 cents.

THE KL Composite Index (KLCI) finished the week with sharp losses on renewed selling in all main index-linked stocks as well as the bearish sentiment influenced by the declining US and Asian markets.

Concerns over a US recession and the bearish impact it would have on markets worldwide are becoming real. Recent comments by the world's richest man, Warren Buffett, that the United States is already in a recession and his uneasy feeling as to how long it would last have generated some uneasiness among large hedge funds.

The KLCI fell from a week's high of 1,344.46 to a low of 1,277.69 points and finished the week sharply lower at 1,296.33, down a hefty 61.07 points or 4.50% from the week before.

All the top 10 index-linked stocks settled the week with large losses.

Volume for the week eased slightly to 1.169 billion from 1.222 billion shares the week before. The daily average volume fell to 233.9 million from 224.5 million shares.

The weekly candlestick chart ended negative and pointed to further downward pressure this week. There were five black candles in the past seven days and the gradual downward pattern shows the index would resume its journey south.

In last week's column, I mentioned that a vital chart support stands at 1,350–1,330 points and, in the event of a successful break below these support levels, the index would trend lower and test its six-month lows at around 1,300–1,280. This has come to pass and we have the index closing the week at the mid-range of this minor support base.

I expect the index to make an early downward break from here this week and head south to initially test the 1,250–1,230 levels. My technical outlook would turn very bearish if the index fails to hold at these levels. My minor chart base is now adjusted lower to the 1,200–1,180 levels.

Technically, I am bearish in my near-term outlook and would look to any intermittent bullish rally to sell just as over the past couple of months most people took the opportunity to buy on any dips.

The overhead resistance for the immediate term is now pegged at 1,300–1,315.

The daily technical indicators closed the week mostly negative and called for more downward pressure for the immediate term.

The daily stochastic triggered the sell signal on March 6 and suggested the index was in a bearish extended-move phase. The oscillators per cent K and D closed lower at 16.83% and 9.91% respectively.

The daily Money Flow Index (MFI) ended slightly higher at 19.12 points and showed light accumulation occurred last week.

The main trend-tracker, the 3- and 7-week exponentially smoothed moving-average price lines (ESA-lines), gave the bearish divergence signal on Jan 25 and continued to show the main trend was bearish.

The 3- and 7-day ESA-lines, remained in bearish divergence and indicated the bearish cycle would continue this week.

The 5-day Relative Strength Index (RSI) settled higher at 24.85 points. Analysis of the RSI shows the index was now out of its oversold position.