POSB MyHome Fund is a fund that invests in two ETFs, namely the DBS STI ETF 100 and the ABF Singapore Bond Index Fund. It aims to maintain a fixed proportion of equities and bonds in these two ETFs, depending on the type of MyHome Fund that one invests in. The 1st type is the HomeSteady, which has 20% of its holdings in the DBS STI ETF 100 and 80% in the ABF Singapore Bond Index Fund while the 2nd type is the HomeBalanced, which has 50% of its holdings in the DBS STI ETF 100 and the ABF Singapore Bond Index Fund.In my opinion, the main attraction for this fund is that it will automatically rebalance your portfolio to the predetermined proportion of equities and bonds, depending on the type which you have chosen. Why is this important ? A portfolio of a mixture of equities and bonds is less volatile than equities alone and this may be suitable for investors who cannot bear to stomach a huge drop in the valuation of their equities. Let us consider a simple example below.
In year 1, you bought $100 worth of equities and $100 worth of bonds and the proportion of equities and bonds is equal at 50% each.In year 3, the stock market has turned bearish by causing a drop of an average of 50% in the price of equities and the $100 worth of equities which you bought in year 1 is now only worth $50. However, the $100 worth of bonds which you have bought in year 1 is now worth $110 since stocks are inversely correlated with bonds generally and bonds are less volatile.Now if you bought $200 worth of equities in year 1, you would have suffer a portfolio drop of 50% at the end of year 3. The portfolio of a mixture of equities and bonds as described earlier would have suffer a drop of only 20%.On the other hand, if the stock market turned bullish at the end of year 3, the portfolio of equities will have a higher paper gain as compared to the portfolio of a mixture of equities and bonds.
The choice of HomeBalanced for the POSB MyHome Fund will be appropriate for those who wish to hold this in the long term but is not able to bear a high level of volatilty in their investment portfolio. I do not consider the HomeSteady to be a wise choice as the proportion allocated to bonds is too high. One might as well buy into the ABF Singapore Bond Index Fund without the additional charges layered for the POSB MyHome Fund. Another point is that stocks has outperformed bonds in the long term in the past so it is better to go for the HomeBalanced.
Unfortunately, another thing that is standing out like a sore thumb is the high initial sales charge, which stands at 3% but if you can only afford a small sum for investment, this may be a good choice.
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