Sunday, June 30, 2019

Portfolio Summary for June 2019

As of 30 June 2019

Cash Equity

Security# SharesPricePortfolio %
DBS Group400$25.9635.60%
LHT Holdings15,500$0.54528.96%
Old Chang Kee100$0.780.27%
Portfolio Market Value = $29,169

SRS Equity

Security# SharesPricePortfolio %
Sheng Siong Group8,700$1.1020.05
CapitaCommercial Trust3,000$2.1713.64%
Frasers Commercial Trust2,446$1.678.56%
Portfolio Market Value = $47,721

June was an uneventful month for me.  I had to set aside cash to pay my insurance premiums and income tax.  I kept a close eye on the market, but did not spot any favourable opportunity to buy stocks on my watchlist.  (I missed the chance to pick up SATS when it dropped to $4.93, because Credit Suisse downgraded the stock to 'Sell'.  Sigh.)

On the other hand, I offloaded two of my REIT positions.  The S-Reits have run up in price, some to heights that I wonder whether the valuation is justified.  My reason for selling is multi-fold.  First, I have changed my investment focus to operating companies instead of REITs.   While REITs provide sizeable dividend income, there is the perennial issue of ownership dilution, because the managers keep issuing new units to themselves as payment for management fee.  Slower global growth may make it tough for the landlords to justify a rental hike, as we recently saw Starhill Global REIT deciding to keep base rent unchanged for the Toshin master lease at Ngee Ann City (news).  Lastly, the capital raising and leveraging up of some REIT counters has made me uncomfortable.  A ballooned debt load and an economic downturn can be a lethal concoction, as we saw during the Global Financial Crisis (GFC).

Trade Actions

Frasers Centrepoint Trust
I let go of my FCT holding at $2.44 apiece, only to see the price blast off to a high of $2.63.  I could not fathom the acquisition of 1/3 ownership in Waterway Point and 17.1% stake in PGIM Real Estate Fund would have such a multiplier effect on FCT.  Are investors getting overly jubilant about the fund's prospects?  Rating agency Moody's did mention 'both acquisitions - of Waterway Point and PGIM Fund - improve FCT's earnings resiliency and geographic diversification' (news).  However, it also cautioned - as with all REITs - that FCT 'faces inherent liquidity risks, due to its high dividend payout ratios and minimal cash balances.'

I sold off AIMS APAC REIT at $1.45 apiece.  I had held the position for a long time, probably since the GFC.  It had served me well, providing a constant stream of income over the decade.  Management had consistently engaged in AEIs to improve the rental potential.  But it was time for me to move on.


Next month's Singapore Savings Bond (SSB) has an average yield of 2.16% p.a (link).  It is as good as it gets.  Investors holding out for a better yield may be disappointed. 

The yield on 10-year Singapore Government Bond dipped below 2% during mid June.  It is puzzling that investors are bidding up stock prices and bond prices - hence the yield decline - at the same time.  It looks like the average SSB yield will only get worse.  (I am guessing 2.01% for the August issue.)

I am not in favour of purchasing SSB at this rate of return, unless you have excess liquidity and you are not keen on stocks. 

Looking Ahead

My wife came across an article forecasting a recession next year (news).  I have my doubts, as there is no clear indication of the global economy tanking at the moment.  The last time I checked, the US Conference Board Leading Economic Index (LEI) is just flattening out (link).  (The LEI is said to be an accurate predictor of US economic health.  It declined rapidly months before the GFC struck.)  

Moreover, during the G-20 Summit, President Trump and President Xi agreed not to impose new tariffs, and for US and China to restart trade and economic talks (news).  While this does not mean a resolution of the trade row between the two superpowers, this is likely to be seen as a positive move and give investors confidence to take on risk.

End July also heralds the start of the earnings reporting season.  I will be watching to see how much an impact the US-China trade row has had on local companies.  

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