Although 2021 was set to look like a continuation of the positive momentum of 2020 that was driven largely by tech stocks, volatility that emerged around December 2021 and continued through January 2022 has eroded a significant amount of those gains.
I am reminded of my end-2018 post, where I reflected on that year and remarked about how I had ended up pretty much where I had begun. A few years on, with a few clicks on Interactive Broker's fantastic PortfolioAnalyst tool, I was able to generate a couple of reports that contained interesting and informative findings on my holdings under IB.*See footnote.
The risk measures section in the report is something I've paid scant attention to. The entire notion didn't even exist back when I was still using the platforms offered by other brokers in Singapore, because those platforms simply didn't let investors generate any sort of meaningful reports beyond the typical monthly account statement. I'm guessing there will probably be some geek who is still with one of those brokers and has taken it upon him/herself to track their investments separately in some spreadsheet in order to compute these statistics, but I neither have the time nor energy to do so. (In any case, IB offers lower fees than the majority of its competitors, and the competitors' platforms are crappier. So it doesn't really make sense to stick with those competitors, although it appears that a lot of people do, whether due to inertia or simple irrationality, I do not know. Disclaimer: I do have SGX holdings with SCB online trading, so I am occasionally compelled to endure using their platform, but I've been actively seeking alternatives.)
Anyway I digress. IB provided me the risk analysis for 2018:
(to decode: VT is Vanguard Total World; EWS is iShares MSCI Singapore ETF, which I use as an inaccurate proxy for STI; SPX is the S&P 500; and Robust is the alias of my portfolio with IB.)
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| Risk Measures for 2018 |
A few more clicks and I got the comparable data for 2020:
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| Risk Measures for 2020 |
And finally, I generated the same metrics for the time period since I setup my IB account and started using it, until the most recently available date (3 Feb 2022):
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| Risk Measures since Inception till Feb 2022 |
Some observations:
- In 2018, Robust's Max Drawdown was 23.04%. This is almost comparable to the ongoing decline associated with the recent market volatility: we're looking at Max Drawdown of 22.45% from Robust's peak in early Nov 2021 until its recent trough on 27 Jan 2022. And there's no indication that we are at the market bottom, so there may be more pain in the coming weeks or months.
- Consider this: Robust's Max Drawdown in 2020 was 30.12% - this was at the onset of Covid outbreak all around the world. If the current bearish market sentiment can't be shaken off, then Robust might approach a drawdown magnitude close to that of the onset of Covid - certainly a worrying thought, but more importantly it's a useful statistic that helps to put things in perspective.
- In terms of Sharpe and Sortino ratios, Robust has outperformed both VT and SPX indices. (Although the EWS index is shown, it isn't a fair comparison since I believe EWS distributes rather than accumulates dividends, and so would be undervalued in all the charts and measures. #See footnote) 2020 was a stellar year with Sharpe ratio above 1, although overall the Sharpe Ratio for Robust since inception remains below 1, at 0.88. I hope to improve this over time. [Sidenote: In calculating downside deviation and Sortino Ratios, IB uses the historical annual return of the S&P 500 since inception, including dividends. This is why the Sortino Ratio for SPX is close to 1 for the Aug 2017-Feb 2022 period.]
- Mean Return for Robust for the full time period is 0.08% daily. This means that if I had $1 million (I don't) in Robust, it would theoretically have generated an average return of $800 every day for the time period. This is a thought experiment more than anything, since there are periods where the portfolio as a whole has declined by 20% or more (see first and second bullet points) but its quite a provoking finding nonetheless.
- Comparing the drawdowns and subsequent recoveries in 2020, the tech-heavy weightage of Robust is evident from its relatively quick recovery of 57 days, compared to the slower recovers of the more diversified indices of SPX (106 days) and VT (110 days). This was because tech stocks benefited immensely from remote working and other Covid restrictions. For the current drawdown, I do not expect Robust to outpace SPX and/or VT in recovery, because the tables have been turned and it is precisely the sector to which Robust is overweight (tech) that has led the recent declines.
*It is truly a travesty that the incumbent brokers in Singapore offer investors no way to generate such reports. This is due to one of two main reasons: 1) the use of individual CDP accounts means that a broker cannot have an accurate picture of its client's holdings at any particular point in time - and by extension, over any particular time period - and hence cannot track returns nor risk measures of a client's portfolio; 2) there is generally a lack of cutting-edge features in investment platforms offered by the incumbents in SG, and most appear comfortable to hobble along with idiosyncratic, feature-thin, and perplexing client-facing products.
# Some info is available on the iShares website https://www.ishares.com/us/products/239678/ishares-msci-singapore-capped-etf#chartDialog that allows for comparison. Using the Aug 2017 to Feb 2022 time period, $10,000 in EWS, with distributions reinvested, would have ended up at $10,492.70. Strangely, the IB captures the EWS return for the same time period as 5.04%, i.e. $10,000 would have ended up at $10,504. Perhaps I'm mistaken, and EWS data reflected in IB reports assumes that distributions are reinvested rather than paid out. But the tl;dr remains the same, performance of Singapore-listed equities has been rather paltry in the last 5 years. Using the iShares site and extending the time horizon to 10 years, the annualised returns for EWS works out to be around 2.3% - notably, this is lousier than returns offered under the CPF Ordinary Account!
