Wednesday, January 1, 2020

Asset Class Correlation 2019

Now that it is 2020, we shall look back at 2019 to see how the various asset classes had performed for the whole year, using data from the Portfolio Visualizer site and respective ETFs representing the various asset classes. I also added the iShares MSCI Singapore Capped ETF (EWS) to show how our local equities fair against the rest.

NameTickerVTIVNQBNDGLDCASHXEWSReturn
Vanguard Total Stock Market ETFVTI-0.38-0.390.02-0.050.8830.67%
Vanguard Real Estate ETFVNQ0.38-0.380.250.390.2528.87%
Vanguard Total Bond Market ETFBND-0.390.38-0.590.26-0.338.83%
SPDR Gold SharesGLD0.020.250.59--0.050.1617.86%
CashCASHX-0.050.390.26-0.05-0.002.12%
iShares MSCI Singapore Capped ETFEWS0.880.25-0.330.160.00-14.53%

Fig. 1 – Correlation results based on monthly returns for the period 1 Jan 2019 – 31 Dec 2019. For full data click here.

The table in Figure 1 showed that while all asset classes, as represented by their counters, had produced positive returns for 2019, there is still negative correlation existing between some of them, e.g. between equities and bonds (-0.39). This leads to the conclusion that although negative correlation between asset classes exist, it does not necessarily mean that some enjoy gains while others suffer losses.

So for 2020 (and the years beyond), stay diversified. 

Sunday, December 29, 2019

2019 Review, 2020 Preview And Bob

2019 is coming to a close, and we are soon entering the third decade of the twenty-first century. It has been an eventful year, and the best is always yet to come.

2019 Review

After suffering a scare during the Christmas period of 2018, the markets had recovered when 2019 began. For the U.S. markets, using the S&P 500 as a gauge, its year-to-date (YTD) performance up till 26 Dec 2019 stood at about +29.08%1, despite the trade war roller coaster ride that prevailed throughout the year. The STI’s YTD was about +6.17%1, which was not that bad despite the lower than expected local GDP figures for 2019.

I had used 3 ETFs that represented my long-term trend views for cybersecurity (HACK), payment solutions (IPAY) and alternative energy (ICLN). Let us see how these three perform YTD for 2019 (as at 27 Dec 2019):

HACK: +23.64%2
IPAY: +42.58%3
ICLN: +44.57%4

2020 Preview

The known fact is that we cannot really predict the future, but based on factors and indicators, and sans black swan events like the Hong Kong protests, we may be able to derive some “educated guesses” to guide us in our decision. Let me share with you some of my “guesstimate” opinions.

I would see some volatility in the U.S. markets given that it is an election year. Although a new challenger has yet to be nominated to challenge the incumbent, the candidates’ various stands on policies and opinion polls may swing several sectors or the markets as a whole. If you are an active investor, stay close to the news and use the ups and downs to your advantage on your buy or sell decisions.

In the local scene, the S-REITs run-up that was experienced during the whole of 2019 had showed signs of tapering, but with interest rates likely remaining low and there might be a chance of the gearing limit increasing from 45%5, we may see a boost in this asset class again in 2020 if both of these fall into place.

On the technology front, though there will always be new stuff and concepts invented and created respectively, the mainstream ones that were seen as disruptive a few years ago (such as e-payments, ride sharing, etc.) are, using the technology adoption cycle, at the border of early adopters/early majority, based on my personal observations in the developed world. This is good news for growth investors as there is still room to go, but not so much for value and dividend investors as most of these companies are still burning cash to sustain the growth. Hence, in my opinion it is better to use ETFs for exposure to the emerging technology sectors, and/or identify matured sectors/companies that provide upstream or downstream support to the former.

I would like to reiterate (again) that it is prudent to stay diversified (e.g. The Bedokian Portfolio’s asset class allocations) in order to optimize your gains and ride out the losses while maximizing capital protection and minimize risks.

Bob

As at 27 Dec 2019, Bob’s Bedokian Portfolio had grown to slightly above SGD 59,000 (excluding the cash component which is not shown) and gained a dividend amount of SGD 1,955.89. All asset classes (except cash) had shown healthy growth for 2019. Bob will rebalance on 2 Jan 2020 with another SGD 5,000 injection, so stay tuned to his portfolio.

Happy 2020!

Disclosure

The Bedokian is vested in ICLN.



1 – Yahoo Finance. 2 Jan 2019 – 26 Dec 2019 (accessed 29 Dec 2019)

2 – ETFDB.com. ETFMG Prime Cyber Security ETF. https://etfdb.com/etf/HACK/ (accessed 29 Dec 2019)

3 – ETFDB.com. ETFMG Prime Mobile Payments ETF. https://etfdb.com/etf/IPAY/ (accessed 29 Dec 2019)

4 – ETFDB.com. iShares Global Clean Energy ETF. https://etfdb.com/etf/ICLN/ (accessed 29 Dec 2019)

5 – Meixian, Lee. MAS seeks views on raising 45% leverage limits for S-Reits. Business Times. 3 Jul 2019. https://www.businesstimes.com.sg/companies-markets/mas-seeks-views-on-raising-45-leverage-limits-for-s-reits (accessed 29 Dec 2019)

Sunday, December 8, 2019

The Fraser REITs Merger

By now there were a few blog posts written about this merger, so I will give my perspective as a Frasers Commercial Trust unitholder.

Overview

On 2 Dec 2019, Frasers Logistics & Industrial Trust (FLIT) had announced that it would merge with Frasers Commercial Trust (FCOT), with the new REIT to be subsumed under the FLIT banner. In this merger deal, FCOT holders will get 1.233 FLIT units plus SGD 0.151 in cash for each FCOT unit, which meant that for every 1,000 FCOT units, one would expect to have 1,233 FLIT units and SGD 151.00 in cash. The pricing was based on FLIT’s price of SGD 1.24 per unit and FCOT’s price of SGD 1.68 per unit, which were at or around the prices prior to their trading halt.

In addition, FLIT would be acquiring a 50% stake of Farnborough Business Park in the United Kingdom from its sponsor, Frasers Property Limited. The remaining 50% belonged to FCOT, so the whole property would eventually become 100% owned by FLIT.

The Bedokian’s Take

In a way, this merger had somewhat blurred the lines of REIT sectoral divisions. With this “enlarged REIT” (the actual term used in the announcements), we will have office, retail, business parks, logistics and industrial, a very diverse mix. In fact, some of the reasons provided for the merger included: to enhance diversification and resilience of the property portfolio, and to have a broadened investment mandate to invest in a wider spectrum of REITs sectors.

But first, let us look at the numbers.

Post-merger and proposed asset acquisition, the net asset value (NAV) of FLIT will be SGD 1.04 on a pro forma basis, gearing of 37% and a distribution-per-unit (DPU) accretive of +4.2% on a pro forma basis (from FCOT unitholder’s point of view). This meant that FCOT unitholders would get FLIT at a price-to-book (P/B) ratio of 1.19 (1.24/1.04), with a higher gearing (enlarged REIT of 37% > FCOT’s 28.6%) and almost the same dividend yield between 5.6% and 5.8% (assuming the pro forma figures stand and the prices remain as at the offer).

In return, FCOT unitholders will have additional logistics and industrial properties in Australia, plus exposure to Germany and Netherlands (from FCOT’s 6 to the enlarged REIT’s total of 98). Also, the weighted average lease expiry and occupancy will increase to 5.8 years (from 4.9 years) and 99.5% (from 95%) respectively.

So now begs the question: is it a good deal for FCOT unitholders, like me?

The answer is: it depends on how you view it.

In my opinion, this is a good starting or refresh point for FCOT unitholders to have a different perspective of their holdings. With the size of the enlarged REIT and given the number of properties the sponsor has around the world that could possibly be injected, the potential for growth and diversification (sectoral and geographical) is there. This I felt could be a justifying factor for getting FLIT at a higher P/B. 

The big gripe that I have is the eventuality of getting odd lots (number of units/shares not rounded up to 100), though this is more of an administrative issue. With a ratio of 1:1.233, the minimum number of FCOT units to have in order to get the nearest 100 FLIT units would be 100,000 (100,000 x 1.233 = 123,300). Fortunately, you can transact units (or shares) of less than the lot size of 100, but it is advisable to contact your brokerage(s) about unit share or odd-lot market.

The merger is still subject to the approval of the unitholders of both FCOT and FLIT, which is expected to be in February or March 2020, so there is still time to ponder over it.

Disclosure

Bought FCOT at:

Bedokian’s Portfolio:
SGD 0.165, Aug 2009 (before 5 to 1 consolidation)
SGD 0.165, Sep 2009 (before 5 to 1 consolidation)
SGD 1.51, Apr 2015
SGD 1.255, May 2016
SGD 1.24, June 2016
SGD 1.26, Mar 2017
SGD 1.47, Mar 2019

Bedokian’s CPF Portfolio:
SGD 1.39, Feb 2018 (sold SGD 1.72, Dec 2019)
SGD 1.37, Jun 2018 (sold SGD 1.72, Dec 2019)


References

Frasers Logistics and Industrial Trust. Proposed Merger with Frasers Commercial Trust and Proposed Acquisition of the Remaining 50% Interest in Farnborough Business Park. 2 Dec 2019. https://flt.frasersproperty.com/newsroom/20191202_073027_NULL_PONX74KUPADGK387.4.pdf (accessed 6 Dec 2019)

Frasers Commercial Trust. Proposed Merger with Frasers Logistics & Industrial Trust. 2 Dec 2019. https://fcot.frasersproperty.com/newsroom/20191202_073544_ND8U_RIRP7SYNJ4WUH2WN.3.pdf (accessed 6 Dec 2019)

Saturday, November 30, 2019

What If The Two Frasers REITs Merge?

The Business Times reported on 29 Nov 2019 that two of Fraser’s REITs, Frasers Commercial Trust (FCOT) and Frasers Logistics & Industrial Trust (FLIT), are making plans to merge, according to sources familiar with the matter1. With both counters halted for trading since the morning of 28 Nov 2019, and not much news forthcoming, the merger issue at this point would be at best, a conjecture.

However, with the slew of trust mergers such as the Viva and ESR one last year and the combination of the OUE hospitality and commercial trusts just a few months ago, the possibility of a merger involving these two seems plausible. FCOT and FLIT are two out of the four trusts in the Frasers family listed in the local Singapore Exchange (SGX).

If (and a very big IF) it is a merger, let us take a look at the numbers before and an implied after:

Trust
FCOT
FLIT
Combined
Total Asset Value
SGD 2,226.9 mil2
AUD 3,554.1 mil3
SGD 5,514.4 mil (AUDSGD 0.925 as at 30 Nov 2019)
Net Asset Value Per Unit
SGD 1.612
SGD 0.953
SGD 2.56
Price-To-Book
(as at 29 Nov 2019)
1.044
1.314
1.18 (averaged)
Gearing/Leverage
28.6%2
33.4%3
31% (averaged)
Dividend Yield (trailing, as at 30 Nov 2019)
5.75%5
5.65%5
5.7% (averaged)
No. of Properties
62
913
97
Occupancy
95% (committed)2
99.6%3
97.3% (averaged)
Weighted Average Lease Expiry (by gross rental income)
4.9 years (committed)2
6.31 years3
5.61 years (averaged)

Note: The above figures may be asynchronous due to the different “as at” information being presented from the reference sources. It also provides a very simplistic and assumptive point of view should the merger event occur, which may or may not materialize in the future.

At a combined asset value of SGD 5.5 billion, it sits between the current ESR REIT (SGD 3.3 billion as at 30 September 20196) and OUE Commercial REIT (SGD 6.8 billion as at 30 September 20197). Therefore, the asset value is comparable to the two mentioned post-merger REITs.

According to SGX rules, a trading halt cannot exceed three market days8, hence we may know the actual news earliest this coming Monday.

Disclosure: 

The Bedokian’s portfolio contains FCOT.


1 – Frasers Logistics, Frasers Commercial Trust make plans to merge: sources. The Business Times. 29 Nov 2019. https://www.businesstimes.com.sg/companies-markets/frasers-logistics-frasers-commercial-trust-make-plans-to-merge-sources (accessed 30 Nov 2019)

2 – Frasers Commercial Trust. 4QFY19 and FY19 Financial Results. 22 October 2019. https://fcot.frasersproperty.com/newsroom/20191105_201648_ND8U_LOTB79B842SXVZX5.2.pdf (accessed 30 Nov 2019)

3 – Frasers Logistics & Industrial Trust. 4QFY19 Results Presentation. 6 November 2019. https://flt.frasersproperty.com/newsroom/20191106_063827_NULL_OFF7JENV0BVJIHYI.3.pdf (accessed 30 Nov 2019)

4 – Based on last closing price on 29 Nov 2019.

5 – Based on data from Reit Oracle. https://www.reitoracle.com (accessed 30 Nov 2019)

6 – ESR REIT Financial Results Presentation. 3Q19. 25 Oct 2019. https://esr-reit.listedcompany.com/newsroom/20191025_062614_J91U_AUTIU22SVU0IE6H4.2.pdf (accessed 30 Nov 2019)

7 – OUE Commercial REIT. Financial Results for 3rd Quarter 2019. 13 November 2019. https://investor.ouect.com/newsroom/20191113_194311_TS0U_V36L8QUSDHME2BXH.1.pdf (accessed 30 Nov 2019)

8 – SGX Rulebook. Mainboard Rules > Chapter 13 Trading Halt, Suspension and Delisting > Part II Trading Halt and Voluntary Suspension > 1302. http://rulebook.sgx.com/en/display/display_main.html?rbid=3271&element_id=5338(accessed 30 Nov 2019)

Wednesday, November 20, 2019

The Bedokian Review Of Mapletree North Asia Commercial Trust And Some Takeaways

Back in June this year, I had written a post on Mapletree North Asia Commercial Trust (MNACT) in my “Inside The Bedokian’s Portfolio” series (see here). In it, I had mentioned about the crown jewel Festival Walk, a large retail and office property situated in Hong Kong, and itself was a prime concern due to the huge concentration in MNACT’s book value and revenue, which both stood at about 60-plus percent.

Last week, Festival Walk had sustained internal damages that warranted a full closure, after it was being targeted by protestor groups in the current unrest. With reopening, we are not very sure whether it may be subjected to further damages. This definitely has a huge impact in retail revenue from shoppers, which in turn rental revenue from Festival Walk tenants and eventually dividends to MNACT unitholders.

I had made an extensive analysis and prognosis of the Hong Kong situation, given the social, geo-political and economy factors, the whole thing may not end quick, and even so, there may still be underlying tensions simmering for another one. Hence, in view of my conclusion above (I could be wrong, though, so please do your own due diligence), I had fully divested MNACT.

It is not really a loss as I had entered at SGD 0.91 back in August 2014 and there were still some capital gains despite my second tranche (which was two-thirds number of units of the first one) of SGD 1.41 added in July 2019. Adding in dividends, it was about 9.8% annualized.

Every moment is a learning opportunity, so using this real-life situation, let me provide some pointers to you as takeaways.

Takeaway #1: Rebalancing The Portfolio, The “Wishlist” And Averaging Strategies

As of 15 November 2019, MNACT stood at about 4.8% of our Bedokian Portfolio in value. The divestment meant an addition of 4.8% to the cash portion and a drop of the same percentage points from our REITs asset class, which is a substantial deviation from the strategic allocation. Therefore, rebalancing has to be done on our Bedokian Portfolio and I would redeploy this capital as soon as possible. This is where the “wishlist” comes in useful.

As mentioned in my ebook, the “wishlist” is a shortlist of financial instruments and investment vehicles (of the various asset classes) that you came up with on a cursory basis1. It also serves as a “what’s next to enter?” guide. Besides the “wishlist”, you could also employ averaging strategies (up or down) on your existing holdings (see here on my post on averaging). 

Takeaway #2 – What Price To Reenter?

MNACT, in my opinion, still has potential, but not at this moment. Besides Festival Walk, it has eight other properties; two in mainland China and six in Japan. The next question would be: What price to reenter?

The most simplistic (and worst-case scenario) to determine the price would be to discount the entire net asset value (NAV) of Festival Walk, which is 66% based on the latest property valuation as at 31 March 20192. With MNACT’s NAV of SGD 1.43 as at 30 Sep 20193, it means the price would be around SGD 0.48. The chance of the price going down that low is remote, though it is not impossible.

There are other valuation methods for REITs, such as funds from operations, dividend yield, etc. As I had stated here, pricing and valuation is very subjective depending on the methodologies used, so stick to a method that works best for you.

Takeaway #3 – Looking Beyond

True that at this price, MNACT’s yield stood at about 6.7%, but all dimensions must be factored in before a sound transaction decision is made. The Bedokian Portfolio’s three-tier fundamental analysis model4 (financial statements, environmental factors and economic conditions) covered most aspects and angles required while looking at a REIT (or company) as it looks beyond just the usual ratios and numbers.

On top of economics, we need to consider also the social, political and even natural variables, for these do really play a part on how and where your investments are heading. Therefore, it is important to look beyond.


1 – The Bedokian Portfolio, p94-95

2, 3 – Mapletree North Asia Commercial Trust, Financial Results for the Period from 1 April 2019 to 30 September 2019. https://www.mapletreenorthasiacommercialtrust.com/~/media/MNACT/Newsroom/Announcements/2019/Oct/MNACT_PresentationSlides__2QFY1920.pdf (accessed 20 Nov 2019)

4 – The Bedokian Portfolio, p84-85

Sunday, October 27, 2019

Tired From Looking For New Companies To Invest? Read This (Very) Short Post.

After investing for a few years, and if you are an active investor, you will have a number of different securities and counters in your investment portfolio. While continually doing research and prospecting for potential companies is one way, it could be exhausting for one if there are other commitments and/or if you still are holding a very busy day job.

If your mind is willing but your physical body is not, then maybe you can consider two other alternatives to manage your portfolio: looking at your current holdings and going the ETF way.

Looking At Your Current Holdings

It is still worth a look at what you have in your portfolio, otherwise you would have sold them off long ago (or maybe still get stuck with them). Some of your counters may still have growth potential, or may have a healthy, increasing dividend yield (i.e. increasing yield along with increasing share price). If you have these, then you can use the “averaging up smartly” mentioned here to purchase them. Fundamental analysis is still required but at least you do not need to start it from the ground up, since you are likely familiar with these companies and treat the analysis as a refresher.

Going The ETF Way

ETFs is another go-to if you want to stay invested but want a lesser amount of fundamental analysis homework. ETFs are good for getting exposed to a particular region/country/industry/sector, or a combination of any of those. In fact, if your portfolio is consisted of just separate companies and bonds, you can jumpstart it into a core-satellite model with ETFs.

My (very) short post ends here. Hope the above provide some jolt in your thoughts.

Saturday, October 19, 2019

Some Considerations When Investing In Technology

Image by Pete Linforth/Pixabay.com

Technology, or tech for short, is one of the most oft-quoted buzzwords among investors and traders. The technology sector, defined by Investopedia, contains “businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology”1. This sector had caused a bubble back in the late 1990s and early 2000s, and it is also leading the charge in changing or disrupting almost all aspects of our work and leisure lives.

The tech sector has various sub-sectors within, such as software and services, hardware, etc. Recent developments have seen it moving into or collaborating with other sectors (or other asset classes), from financial technology (fintech) with the banks to driverless vehicles in transportation. All these upstream, downstream and sidestream linkages are made possible with this thing called the internet, which by now had permeated into our everyday lifestyle.

With the sector being likened to a huge buffet spread, it is difficult to pinpoint where to start investing. In this article, I had cobbled up some considerations for you, hopefully they could provide the right guidance and set the correct direction to explore. 

Consideration #1: The Infrastructure

Although the internet is a vast, virtual place with unlimited boundaries, it still resides in physical objects called servers. Even the cloud services, like online emails and storage spaces, needed servers to house them. With this, we can look at the two areas in this consideration: servers and data centres (specialized buildings housing servers, which are mostly in the REITs asset class).

And it doesn’t just stop there. Besides servers, you can look at the peripheral equipment such as routers and switches, operating systems and specialized server software. You can use the concept of associative investing mentioned here previously in my blog to help you.

Consideration #2: Protection And Security

As long as anything is connected to the internet, there is the high possibility of a compromise to a computer system or network, be it a virus attack, a hacking incident or something else. It is precisely these vulnerabilities that cybersecurity is important and has a high potential. In monetary terms, the size of the worldwide cybersecurity market is forecasted to grow to about USD 248 billion by 20232.

We have heard of reports and incidents where databases have been hacked into, malware attacks causing networks to go down, cryptocurrencies being stolen, etc. As long as the internet is around, and the presence of people wanting to exploit it for their illegal gains, cybersecurity is here to stay.

Consideration #3: Electronic Payments

This one need no introduction as I believe most of us have utilised electronic payments (e-payments) in one form or another. Using physical cash or other types of payment documentation (e.g. cheques) are getting passé; in fact, the worldwide adoption of e-payments and its various forms e.g. mobile payments, are gaining traction. In 2019, China led the way in mobile point-of-sale (POS) segment, with a penetration rate of 35% and an annual average transaction of around USD 1,100 per user3.

The e-payment segment itself is very broad, covering hardware (e.g. terminals), software (e.g. POS systems), platforms (e.g. app portals), etc. With money involved, there is definitely overlapping with the financial sector, so this is another area to look into.

Consideration #4: What Other People Are Having And Using

This one is simple: see what most other people are having or using. Next is the hard part: knowing whether it is sustainable in the long run. The technology sector is full of fads, and identifying the long-term trend from the flash-in-the-pan fad is a big challenge (see here for my article and fads and trends). A good illustration was the quick rise and fall of netbooks back in the late 2000s due to the rise (and still rising) of tablets.

If you are still unsure on how to tell between fads and trends, you may want to look at the current market leaders instead, especially those that had at least withstood the test of time.

So How To Invest In Technology?

A point I would like to highlight is that for the tech sector and the companies in it, from a book valuation point of view most of them are overpriced, so a conservative value-based fundamental analysis (FA) with strict criteria may not yield a lot of counters to go into. Therefore, we have to view this sector from a growth perspective.

The simplest, cover-all way will be to invest in a technology ETF. There are also ETFs that cover considerations #2 and #3. However, these ETFs are not available locally, and you have to find them at the U.S. markets. If you are savvy enough, you can look at individual tech or tech-related companies, conduct FA and see which one has good potential to grow.

As mentioned earlier, there are other sectors and asset classes related to tech. For data centres in consideration #1, there are REITs available, and locally there is one pure data centre REIT listed. Some financial institutions are implementing fintech as part of their core structure, so that is another place to visit. Remember, FA and due diligence are required before making that investment decision.


1 – Frankenfield, Jake. Technology Sector. Investopedia. 13 July 2019. https://www.investopedia.com/terms/t/technology_sector.asp (accessed 18 Oct 2019)

2 – Shanhong, Liu. Size of the cybersecurity market worldwide, from 2017 to 2023 (in billion U.S. dollars). Statista. 16 Oct 2019. https://www.statista.com/statistics/595182/worldwide-security-as-a-service-market-size/ (accessed 18 Oct 2019)

3 – Buchholz, Katharina. China’s Mobile Payment Adoption Beats All Others. Statista. 7 May 2019. https://www.statista.com/chart/17909/pos-mobile-payment-user-penetration-rates/ (accessed 18 Oct 2019)