GoHuat’s Views on Current STI Market and Upcoming Plans

Over the past few months, the STI has risen steadily to the current support level of 3300-3350. One potential thought is to sell off some shares in CPF Investment Account to preserve some of its gains. Based on current market conditions, my target sell prices for the shares in my CPFIA are as follows: OCBC@S$11.50; for STI ETF@S$3.52; and for Singtel@S$4.25. My CPFIA portfolio is expected to achieve an estimated returns of around 2.56% in 2017, based on total dividends over total purchase price. (Note: My first purchase was in end Mar 2017 so I missed out some dividends before that).

I am also planning to start selling my cash investment once STI hits 3.5K or if there is a change in the global outlook. Over the past few months, I have accumulated more Singtel shares. My current portfolio consisted of 3 “anchor” shares - Singtel, MapleTree Logistics Trust (MLT) and Ascendas Hospitality Trust (AHT). These 3 shares formed around 25% of my portfolio in terms of purchase value. The remaining 75% are shared between Finance (i.e. Banks and financial companies) and Oil & Gas shares.

My "anchor" shares have performed well while paper losses in O&G shares remained a sore thumb. However, I am happy that the damage has been reduced by my timely shift into “anchor” shares. My current view is that the O&G sector is starting to show some minor recovery signs, with indicators such as the rise in oil prices and early interest to buy over completed Sembcorp Marine’s rigs. Related to this is a recent report published by DBS on the potential merging of Keppel and Sembcorp Marine. I thought it would be interesting to share my facebook views here:

Will both companies merge? Though there are benefits of cutting cost during this downturn, I still think that the sector has a good chance of recovering  in the longer term. I also agree with this article that a merger will cause a monopoly issue in Singapore. Hence, my current belief is that the likelihood of a merger is low. What are your views on this?

Together, let us all Go & Huat ah!

GoHuat

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Q1 2017 Update for Mapletree Logistics Trust

MLT released their Q1 results yesterday. Here are some key highlight of their Q1 2017 performance.

• DPU increased by 2% from 1.85 to 1.887 cents.
• Slight decrease in Net Asset Value from S$1.04 to 1.02.
• Aggregate leverage increased slightly from 38.5 to 39%.
• 79% debt hedged into fixed rates & 70% of income stream for FY17/18 hedged into SGD.
• Decrease in portfolio occupancy rate to 95.5% on 30 Jun 17 from 96.3% on 31 Mar 17 

While MLT's DPU has continued to rise, I am slightly surprised by the decrease in portfolio occupancy rate; which is likely due to the dip in occupancy in South Korea from 98.4% to 83.3%. Will continue to monitor if there are any improvements in the next quarter results. I still rate MLT as a quality purchase and there should be no major business issues in the near-term. 

Most of my shortlisted shares have already well-exceeded my target buy price. On the sell side, some stocks are reaching my target sell price. However I am likely to adopt a wait-and-see attitude before making any sell decisions as there are no significant changes to the global landscape yet. During this period I am likely to focus on building up my cash "war-chest" to prepare myself to buy in when opportunity arises. 

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Should we use our Annual Performance Bonus to Top up our CPF?

As an employee, we would work very hard to secure our monthly pay-check and the ultimate annual performance bonus. Recently, I was engaged in various discussions on how to use our bonus. Some people even told me that the sum of money is causing them a headache because they do not know how to use it! Alamak, I really won’t mind helping you to solve this problem! 😜

So what would I do with my performance bonus?

For the initial years of my career, they would all end up transforming into shares investment or into my future funds such as emergency funds as well as expenses for wedding, house renovation, etc. From last year onward, I started to set aside up to S$7K to perform voluntary cash top-up to my CPF Special Account. Why? 

Like many, my initial considerations were just for the tax reliefs, potential gain from the CPF interest rate and to max up my CPF SA as quickly as possible. Later on, I wanted to open up the option of using my CPF OA money to pay for subsequent property investment. As I could only use the excess CPF OA savings above the CPF Basic Retirement Sum* for the purchase, cash top-ups & their interest returns would help to accelerate this process. My latest thought was that the money in CPF could also act as an “insurance” or “monetary support” for my wife/family members in the event that I suddenly pass on. Minimally the money could help to cover arising related expenses for my family. My personal philosophy on this is:

“We can be positive about the future but must be prepared and responsible for what happens next”

Simply, I want to still be responsible for related matters even for the future beyond my life. If you are interested to find out more about cash top up to your CPF SA, I will recommend to start off with EzHuat’s article here.

Rambling a bit more about a related discussion among my fellow Huats, YoloHuat pointed out that people might not want to perform cash-top ups due to their upcoming payment needs. For this case, I fully agreed with her. Topping up our CPF is still an investment, and we should only do it using our spare cash! Recall that my personal experiences (see post) taught me to: ONLY INVEST WITH MY SPARE CASH.

There is no one-way of using our annual performance bonus and it would depend on the outcome that we hope to achieve. We have a choice on what we want to get out of it, for a good vacation to reward our family and ourselves, or for investments to prepare for financial-freedom, etc. Nothing right or wrong. Ultimately, we just have to be comfortable with the decisions made and be responsible for the subsequent outcome. :)

* Note that the Basic Retirement Sum is reviewed by CPF every year. As of now, savings in our CPF OA & SA (including amt used for investment under CPFIS-SA) can be used to meet this required amount.

Together, let us all Go & Huat ah!

GoHuat

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YoloHuat's 1H 2017 Report Card

The first half of the year is almost gone and doomsday never arrived. Instead, stock prices continued to make new highs. A parking spot in Hong Kong gets sold for a record HK$5.18 million (US$664,300), costing more than some Hong Kong homes - and housing there is already the least affordable in the world. A new 100-year Argentina (one of the most regular defaulters in history) sovereign bond apparently was 3.5x oversubscribed. Investors simply do not believe in the Fed’s hawkish zeal, and so the party continues.

Anyone who remained invested in the market should have seen pretty decent returns so far this year. I thought I was totally nailing it, until I generated some numbers to see how I stack up against the index:

My report card (as of 28 June 2017):

The blue bar is the XIRR of all cash flows from Jan until 28 June for my portfolio (I'm slightly bemused that it's such a nice round number), while the red bar is the annualised year-to-date return of the SPDR STI ETF. It is indeed disappointing to be lagging the index, and after some scrutiny I attribute it to poor timing - buying in too early. Clearly this result explains why there has been raging debate over active vs. passive investing.

With hardly any yield on cash and limited avenues to generate returns, for the common retail investor at least, this long upcycle has likely resulted in most of us being long and overweight equities. The slow nominal growth however, induced us to complement it with an income focus (thus the popularity of REITs and dividend stocks). A quick browse through of the local finance blogs and sell-side research reaffirms this view - and leads me to wonder if everyone has the same positions. In fact, it’s my biggest worry now, especially with the pervasiveness of passive index investing. Downside has actually risen, as any sell-off would lead to everyone trying to get out of the same door at the same time. (Meanwhile, upside is limited with everyone having bought already.) You may argue that you are in for the long term and will ride through the cycles, but how confident are you that you will not hit the panic button when shit happens, especially when money can be pulled out with only a few clicks? To be honest I’m not that confident myself. Plus, my emotional control hasn't really been put to the test yet. I draw comfort though from the knowledge that I do not depend on my portfolio for liquidity. Do read this post on spare cash by GoHuat if you haven't.

Cheers

YoloHuat  

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Confidence in Ascendas Hospitality Trust Paying Dividends?

I first took note of Ascendas Hospitality Trust following their failure to sell their business. At that time, I was  looking for REITs/TRUSTs with business operations across the Asia-Pacific region, instead of in Singapore only. My consideration for the hospitality sector is that Singapore was projected to have an increase in supply of hotel room over the next few years, and it is impossible to be certain whether more tourists would come to take them up.

Out of curiosity, I decided to go through AHT's financial statements. Besides having a good balance sheet, their exposure in Australia and Japan drew my attention as I believed both countries have the right business conditions such as low interest rate and then-depreciating currency. Moreover the share price was below my target buy price. Not difficult to guess what comes after that right? 😜

Here is an brief overview of AHT's business:

Credit: AHT 4Q FY2016/17 Financial Results Presentation

So how did AHT perform in FY2016/17?

Credit: AHT 4Q FY2016/17 Financial Results Presentation

Based on their 4Q FY2016/17 report on 11May, AHT have performed very well by clocking a record Distribution per Stapled Security of 5.68cents. Their Net Asset Value has also risen from S$0.85 in Dec 2016 to S$0.92 in Mar 2017.

 Credit: AHT 4Q FY2016/17 Financial Results Presentation

Credit: AHT 4Q FY2016/17 Financial Results Presentation

Net Property Income is an important indicator to determine a property portfolio’s profitability. I am interested to find out the breakdown of AHT's NPI by country, as the tourism business is geographical-dependent. 51% of AHT’s NPI comes from Australia and 29% from Japan. To this end, both countries have registered a rise in NPI of 12.9% and 24% respectively. 

Final Thoughts

Glad that my investment in AHT has gone well so far and I remained hopeful for more dividends to come in future. A key risk that I am monitoring closely are potential business disruptions such as AirBnB which has affected the business of traditional Japanese Inns and are gaining much popularity in Australia. Staying alert to the global trends remains important to me as these disruptions could snatch away our "lunches" really quickly!

Together, let us all Go & Huat ah!

GoHuat

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Rationalising Mapletree Logistics Trust ...

Mapletree Logistics Trust is one of the best performers in my portfolio. My interest in MLT lies in their well-managed business across the Asia-Pacific region and backing by a strong sponsor - Temasek. I managed to sieve out 5 key indicators from their 4Q2016 & FY2016/17 results which could be useful to note:

• Business performance, in terms of available Distribution Per Unit, has increased by 0.8% Year-on-Year.
• Increase in Net Asset Value from S$1.02 to S$1.04.
• Aggregate leverage fell from 39.6% to 38.5%. This could potentially provide MLT with the capacity to borrow more to fund further acquisitions.
• 81% debt hedged into fixed rates & 72% of income stream for FY17/18 hedged into SGD.
• Slight rise in portfolio occupancy rate to 96.3% in Mar 17, from 96.2% in Mar 16.

My confidence in their recent acquisitions in Australia and Vietnam has been rewarded, as these properties have been fully leased and are contributing well to the overall Net Property Income. I also like MLT's strategy to divest the old warehouse in Toh Guan, given its limited potential for re-development into a modern facility. The money from the sale can then be reinvested in other warehouses with greater potential. Overall, I still find MLT's business to be well-managed and a quality investment. 

So what’s next? I saw this article on Colliers International for USA and thought that it could potentially serve as a guide for the future Asia-Pacific region.

 

Extracted from: Colliers International, Knowledge Leader

As the e-commerce in the Asia-Pacific region is expected to keep growing, my view is that this would likely to continue fuel the demand for warehouse spaces in the next few years.💪 What do you think?

Together, let us all Go & Huat ah!

GoHuat

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Why should we ever use our CPF OA for investment?

Whenever I bring up the topic of investing the money in my CPF Ordinary Account (OA), my dad will always remind me that the primary purpose of our CPF is to support our retirement purposes; and I should consider very carefully if I decide to use them to invest in stocks/bonds/gold. Well, he is not wrong and there is little reason to disagree with him. The present CPF OA’s 2.5% interest rate is actually not too bad and most importantly, it is risk-free. So why should we ever use our CPF OA for investment?

Our triggering point came last year when it dawned on my wife and I that all of our CPF OA will soon be wiped out by HDB. We started to ask ourselves whether this move will fit well into our investment strategy. A few questions sprung to our mind:

· What is the purpose of the money in our CPF OA? I think this is the most fundamental question that we should ask ourselves. If we are not convinced, we would just let HDB flush away our CPF OA as clearing our loans should be the safest bet, right? Well, one potential use-case is for the purchase of a 2nd property in future. The money in CPF OA would be useful in providing extra firepower to our “cash-on-hand” to fund the purchase.

· What are my options to prevent our CPF OA from being flushed out? Based on my research, they include: (Option 1) Transferring the money from CPF OA to CPF Special Account (SA). (Option 2) Use the CPF OA money to invest in stocks, bonds, gold and/or etfs.

· What are the pros/cons of Option 1? The SA account yields a higher, risk-free 4% interest rate return. This interest rate is much higher than the 2.6% HDB loan rate which means that I could earn an additional “1.4%” and more each year. However, in the near term, I might have to use some “cash-on-hand” each month to cover the loan if my monthly OA contribution is unable to. Another consideration is that this money could only be withdrawn around 20 years later.

· What are the pros/cons of Option 2? This option will allow us to hold our money in CPF OA so that when the opportunity arises, we can use it for our future purposes. The downside is that there is a potential likelihood for the OA money to get stuck in a paper-loss situation. We will also have to take on the investment risk fully by ourselves instead. 

So what is our final decision after all these brainstorming?

We decided to adopt a hybrid approach using Option 1 and 2. The current interest rate for HDB Loan is 2.6% and I believe that it is not too difficult to achieve an investment return that is higher than that. My aim is to at least achieve a minimum of 3% returns per year in order to be higher than the 2.6% loan rate after deducting all transaction cost. I focused our portfolio on 2 strong companies - Singtel and OCBC so that even if we get ourselves into a paper-loss situation, their annual dividends should still be stable enough to maintain throughout. 

Over the past weeks ago, my wife and I have purchased and are adding more Singtel, OCBC which we think are suitable at this point; and also STI ETF shares into our CPF portfolio. Once we have used up our CPF OA until its remaining S$20K, we are likely to transfer a portion of the S$20K into SA; after taking into consideration all other payments such as the remaining 5% downpayment (staggered downpayment scheme).

Moving forward, we are keeping a close watch on the HDB loan rates. This is important as any drastic increase could potentially change our approach, though we believe that the chances of this happening should be relatively low. Still, no one can ever predict the future and we should just get ourselves prepared.

Hope you enjoyed this sharing and so, What will your approach be if you are in a similar situation ?

Together, let us all Go & Huat ah!

GoHuat

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Recommending stocks can be tough, but so are You!

I often read about people seeking stock recommendations on Facebook or asking about the stocks that are suitable for buying in. For me, this is really a tough question to answer well as it usually involves some background understanding of the investor.

You might already be aware that my investment style is primarily based on “Global Trends” + “Fundamental Analysis”. This means that I spent a lot of time analysing & keeping myself updated of the global trends as well as to run through company financial reports every now and then. Boring right? If you have read my earlier post, I made several poor investment decisions in the past and these had resulted in a lot of stress for myself. This is the main reason why my first investment advice is to only invest with your spare cash. In case if you are interested, you can read about how I built up my spare cash too.

So, Why is it so tough to provide stock recommendations?

Because every share purchase carries a level of risk and it is important for the investor to understand whether this risk fits their investment profile before considering whether they should buy it.

Take for example, if a 80 year old retiree asks me what shares should he buy with his spare cash, I will be very curious WHY he wants to buy in the first place. For his age, it might be more practical to put his money into the bank or into short-term fixed deposit rather than taking on such a high risk to buy shares, isn’t it?

But we still can ask for recommendations, right? Well, maybe. But I am unsure of its usefulness unless we are just trying to find out what other people are considering or have considered at that point. My view is that most stock recommendations will no longer be valid once the market or business conditions changes; which might come quickly and suddenly. Another reason for myself is that I based my target prices for buying and selling on a set of criteria so my definition of “good buy” might not necessary be the same for others. Likewise many investors used different yardstick to define a “good stock to buy/sell/trade/invest”.

Is there that much things to learn before investing in a product? For me, the answer is a clear “Yes!!”. The risk of losing money will always be there when we decide to invest in a product. This is why we need to put in effort to learn about our investment product instead of only asking for recommendations. Many of us might find this to be really tough since we usually lead a relatively busy life out there. But I am sure that my readers here are tough enough to find time to put in the extra mile for your own investment journey. Maybe a bit of motivation from Mr Warren Buffett might come in handy here. :)

Recommending stocks can be tough, but so are You! 

Together, let us all Go & Huat ah!

GoHuat

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Investing Positively in Lifelong Learning?

The start of 2017 has been especially busy for my work. Well it should be the same for all of you right? Despite that, I am still trying to take time off every week to read The Economist which helps to give me a well-summarised global outlook. Recently I found this article related to Lifelong Learning to be rather thought-provoking.

Well, as a quick takeaway, a chinese proverb will perfectly sum up the essence of the above article:  活到老，学到老 (Live and Learn or Lifelong Learning).

In line with this, I view my investment journey to be a lifelong learning process and part of that process is investing my time to engage in active discussions on facebook. Recently, in one of the discussion, some started to attack each other’s views and ideas, maybe because the views had not flowed well with their own chain of thoughts. I chipped in my fair share of thoughts as well:

I do not believe in a single investment strategy that is the best. Ultimately, our aim as investors is to improve our investment knowledge and skills to grab money from Mr Market. 

One famous quote from the previous Chinese President Deng Xiao Ping: 黑猫白猫抓住耗子就是好猫 (It doesn't matter if a cat is black or white, so long as it catches mice.) If a investment strategy is able to help you to make money legally, good for you! Will it work for another person? Hmm..😐.. Likewise, will another person's successful investment strategy work for you? I guess the answer can be found in your investment report card. 😉 

For me, the idea of lifelong investment learning is to help sharpen my investment knowledge. Hence, active exchange of views from various angles will certainly be beneficial in broadening my perspective. 

Wouldn't it be better if our time and energy can be positively invested in uncovering merits that can be used to strengthen own? 

Together, let us all Go & Huat ah!

GoHuat

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GOOD BYE 2016. WELCOME 2017!!

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The Year Ahead

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The Year Ahead

The eventful year is coming to a close soon. Kudos to everyone for surviving the rollercoaster ride! President-elect Donald Trump was a total game changer indeed, and we are now facing a stronger US dollar, higher commodity prices, higher bond yields, and lower gold prices. Even the US Federal Reserve has become more hawkish.

For the past 1.5 months or so, the growth strategy has continued to fire on all cylinders and pushed equities in the US up by nearly 6%, while the STI rallied by 5% to ~2,960 within a month of the elections (although it has since retraced by about half of that move). There was a comment in a Bloomberg News article that if one closed his eyes and bought into the market at the start of 2016 and only opened his eyes again at the end of the year, he would never have guessed that events like Brexit and Trump happened. Lol.

With still so little concrete information besides who won the elections and the appointments for the various posts in the administration, one does wonder though whether markets are getting ahead of themselves (especially for us folks in this part of the world - Asian countries are running a $401 billion goods trade surplus with the US this year, according to the US Census Bureau). For investors who did not join the growth trade immediately after the elections, this translates into the question of whether it is now too late to join in.

Some food for thought:

1. Singapore is facing a period of slower growth as it attempts to reorient its economy. GDP growth is trending at about 1%, supported by government spending. 3Q GDP growth was revised upwards to 1.1% year-on-year from the advance estimate of 0.6%, but still a slowdown from 2% in 2Q. The services industries, which together account for around two-thirds of GDP, entered a third consecutive quarter of contraction, led by the external-oriented sectors. The financial and insurance services sector underwent its first y-o-y contraction since the global financial crisis. Singapore banks continue to grapple with a credit cycle. In the property market, concerns remain over the overcapacity in office space, falling retail sales, and a residential market correction.

2. Will MAS come in to support? The latest meeting saw the central bank keeping on hold as it believes its past policy easing will continue to filter through to the economy in the quarters ahead. It probably can ease further if growth does not pick up as expected, but this may get tricky against a backdrop of US rates and the dollar continuing to rise. Furthermore, note that with higher US rates and dollar, Asia (including Singapore) may see reduced support from foreign inflows.  

3. How high can the US Treasury yields go? Market expectations of two hikes in 2017 proved to be too conservative and the outcome of the Fed’s December meeting, with median projections of three hikes next year, caused some repricing. One of the Fed’s most hawkish policy makers has even warned that the Fed may have to raise rates more than three times next year. During the 2013 taper tantrum, the 10-year yields rose to 3%. The US labour market is much tighter now than it was in 2013. Seems like there’s more room to go?

4. Eurozone equities have lagged significantly year to date and suffered from big outflows. The Eurozone business cycle is also at a much earlier stage than the US one. Valuations may therefore be looking cheap, but the election calendar going forward is heavy. Trump’s victory could just be the start of the rise of populism, and this could potentially throw markets off by a greater extent.

Mentioned Europe because I’m considering getting some exposure likely via a low cost ETF. Anyway, I’m generally still on the sidelines, didn’t participate in the rally and hence am more cautious now on the trends going forward. Would be looking for cues on policy direction from the new US administration next year. Plus, I may need some extra cash for a new flat sometime next year (maybe - haven’t even gotten queue number yet), so not much dry powder.

In November I added Singtel and Aims Amp Capital Industrial REIT. For Singtel, being a blue chip name that everyone likes, I needn’t explain more right? Added on the dip during the month, though it was still an average up. I’m also a happy subscriber because now my mobile phone bills are lower by ~$20 per month after I switched to their SIM-only plan (I know this is not good for ARPU though… :p). Aims Amp: averaged down my cost when the price came off after the lower 3Q DPU. I think concerns about the sector are well flagged and management has been pretty proactive. This month, I took profit on Apple, which I held for trading (total return ~24% in SGD terms - some dividends, some unrealised FX gains, mostly capital gains). It rose further after I sold zzz. Anyway, will be keeping the USD proceeds for the next trade.

Merry Christmas and happy 2017 in advance!

Regards

Yolohuat

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