Portfolio for sgfunds.com fund portfolio contest - first half of 2007

Details of the contest can be found here. Below is my portfolio for first half of 2007:

Name: globevestor
Profile:Global absolute return 2007
1) UOB United Gold & General Fund - 30k
2) Lion Captial Glb Ind & Res Invt-A - 15k
3) DBS Enhanced Income SGD - 45k
4) Aberdeen Thailand Equity - 10k


Strategies

#1 Foresee a correction in global stock markets of at least 20% in first half of 2007. Reason is most of stock markets are overbought using weekly charts. As an example, see weekly chart of Dow Jones Industrial Average, NASDAQ and S&P 500 below.

Dow Jones Industrial Average vs S&P500 vs NASDAQ

Therefore cash is parked in money market fund, DBS Enhanced Income SGD. Then how about bond funds? If there is correction in global stock markets, will the bond funds rally because of fear of slower growth and desire for safety? In the short term, long term bond funds may have benefited from rotation. However since I do not know any long term bond fund in Singapore, I will pass this possibility. How about Singapore bond funds? Most of Singapore bond funds are in overbought zone using weekly charts. See weekly chart of DWS Lion Fund below.

DWS Lion Bond Fund


#2 Invest in least appreciated funds for the past six months with good long term prospect, e.g. commodities funds. See chart of Dow Jones Industrial Average, NASDAQ, S&P 500 and CRB Index below.

Dow Jones Industrial Average vs S&P500 vs NASDAQ vs CRB Index

Of all the commodities, I am most bullish on gold since it is least affected by slower growth. Therefore United Gold & General Fund is my top pick for this reason. However to mitigate risks of single fund, I also allocate a small portion of cash to Lion Capital Glb Ind & Res Invt-A, which is mainly an energy fund. If the global stock markets were to experience correction, would commodities funds behave more like stock funds or commodities? Based on weekly chart of United Gold & General Fund and S&P 500 below, commodities funds behave more like stock funds during correction.

UOB Gold vs S&P 500

However technical setup of commodities funds are better because they have already experienced correction. In addition, US Dollar is weak which is negative correlated to commodities. See chart of US Dollar Index vs CRB Index below.

US Dollar Index


US Dollar Index vs CRB Index


#3 To protect against strategy #1 when the correction is mild, e.g. less than 10%, I need to allocate a small amount of cash to an equity fund. However most of equity funds are overbought using weekly charts. I need an equity fund that has already corrected. For this reason, I pick Aberdeen Thailand Equity. Based on the weekly charts of SET Index below , the best case is it will move sideway. The worst case is it will rebound to upper boundary of down channel and move downwards again. In any case, SET is expected to rebound. This strategy protects the portfolio from underperformance if the bull markets refuse to give up.

SET Index


OK, I have a list of funds for first half of 2007. How do I allocate cash to each fund? I will use probability. I am bullish on first two strategies, therefore I allocate most of cash to these two strategies, e.g. 45% for each strategy. Since I am more bullish on gold than other commodities, United Gold & General Fund will get 30% of cash. After these allocations, only 10% of cash is available for last strategy.


P.S. If you would to consider this portfolio for your CPF investment, replace United Gold & General Fund with First State Global Resources.


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