Wednesday, 14 September 2016

Dividend Knight Income Portfolio Update (Sep 2016)

No. of Shares
30, 000
10, 000
8, 000
2, 031
Frasers Centrepoint Trust
15, 000
Mapletree Logistics Trust
25, 365
Raffles Medical Group
18, 094
3, 020
4, 000
CapitaLand Mall Trust
7, 000
ParkwayLife REIT
5, 000
12, 000
Keppel DC REIT
10, 000
Suntec REIT
6, 000
Ascendas REIT
3, 000
Sheng Siong
7, 000
Mapletree Commercial Trust
Dividends received in September 2016: S$1, 572.13
Total dividends received since Jan 2016: S$12, 030.46
Average dividends per month: S$1, 002.53
Average dividends per day: S$32.96
Total portfolio market value: S$353, 323
Unrealised Profits: S$51, 762
For the month of September, I will be collecting a total of S$1, 572.13 in dividends and distributions from my income portfolio. An improvement compared to last year's harvest.^^
  • Ascendas REIT: $174
  • Mapletree Logistics Trust: $433.13
  • AIMS AMP Capital REIT: S$825
  • UOB: S$140

Recent portfolio actions:
  • Total divestment of Frasers Centrepoint Limited
  • Accumulated Raffles Medical Group
  • Subscribed to preferential offering of Mapletree Commercial Trust
  • Subscribed to DBS's SCRIP
  • Subscribed to MLT's partial DRIP
The huge drop in my portfolio value was due to Fed rate hike jitters in recent weeks before the FOMC meeting later this month. Another contributing factor is the impending threat of the 4th Telco in the local market. The depressed oil price is not helping the banks either since their non-performing loans from the O&G sector will probably keep rising. Nevertheless, I shall stay mostly vested. Time in the market is better than timing the market. I know.....I sound like a broken record by now! hahaha :)

On the 1st September, 3 companies - MyRepublic, airYotta & TPG - submitted their interest in the bidding of spectrum in the local Telco market. The prices of the three incumbents (Singtel, Starhub & M1) have been on a downtrend ever since. M1 is heavily dependent on mobile revenue. Around 80% of its service revenue comes from mobile services, which is expected to be the segment most vulnerable to the 4th Telco. 55% of Starhub's service revenue comes from mobile data. Singtel is the most resilient as only 13% of its service revenue is attributed to mobile services. However, Singtel will soon be facing serious competition from Reliance in India.

The new challengers keep harping on building an innovative, exciting and data-led Telco instead of engaging a price war in the local Telco market. These positive, gung-ho talk is all good and nice but I have my reservations. Mobile services is rather straightforward and plain (maybe Starhub has the 'Hubbing' edge going for it). In general, when companies in an industry have difficulty differentiating their products/services from one another, a price war of some form usually erupts. Just look at Uber and Didi Chuxing in the cab-hailing market in China. In the end, Uber raised the white flag after a year of painful price war.

Assuming the 4th Telco provides the same quality of service as the incumbents (and that is a BIG 'if'), which Telco has the financial muscle to survive a prolonged price war? Singtel. More than 70% of its revenue is attributed to its overseas operations. If I am running Singtel, I would dig my heels in and seek to outlast the new competition. I would rather see my competitor lose than win myself. M1's revenue will probably be hurt the most if the 4th Telco moves aggressively to grab market share.

On the macro-economic front, I think the STI would remain pretty much in the doldrums for the rest of 2016. There is simply no upside catalyst at all for most of its heavyweights.
  • O&G sector is plagued by depressed oil price (Kep Corp & Semb Corp)
  • Banking sector has to contend with rising non-performing loans from O&G sector & declining housing & business loans (DBS, UOB & OCBC)
  • Telco sector facing competition from 4th Telco (Singtel & Starhub)
  •  Real estate sector is weak due to property cooling measures (CapitaLand, CDL)
  • REITs are facing pressure due to Fed rate hike & oversupply of rental spaces
Singapore's 'Committee of the Future Economy' really needs to pull a rabbit out of the hat by the end of 2016, otherwise the next few batches of graduates might become 'recession graduates'.

The sidelines is not where you want to live your life

Tuesday, 30 August 2016

A Paradigm Shift - Innovate or Perish

Singapore's economy is at a turning point. Local businesses are facing challenges such as digital disruption, labour crunch and high operating costs. We are in danger of losing our relevance in a global economy which is undergoing a 'Third Industrial Revolution'. Latest economic data showed falling inflation and exports. Unemployment is rising as more workers are rendered redundant due to technological disruption and lower global demand. The traditional bellwethers of the STI - banks, property developers, rig-builders - are struggling as property sales remain sluggish and oil price is stubbornly depressed. All these talk on SMEs becoming more innovative is mostly paying lip service.
PM Lee speaking at National Rally 2016

Conventional wisdom dictates that a Singaporean resident must invest in property (usually eating up most of his savings), as if property investment is the sure-win method to financial nirvana. A word of caution. What works for our grandparents (pioneer generation) and parents (baby-boomers) might not work for us and the future generations. Moving forward, local residential property prices are unlikely to see exponential appreciation compared to the 80s and 90s. Those times are not returning.
You might be wondering......why so fearful, DK? In the worst-case scenario, the Singapore government can implement expansionary fiscal policies to 'juice up' the economy. That worked before. Unfortunately, our aging demographics meant that social spending will only escalate in the future, thus limiting the amount of support the government can provide. Besides, we simply could not afford to keep dipping into our national reserves.
Wait a minute! How about Temasek Holdings and GIC? Surely they can swoop in as white knights in their shiny armour to save the day! The hard truth is actually more years of expected lower returns from our SWFs.

Wednesday, 24 August 2016

Beware of Valuations When Buying Emerging Markets Bonds & Dividend Stocks

At the start of 2016, emerging markets (EM) were in turmoil as droves of investors withdrew funds in the wake of a long-awaited Fed rate hike in December 2015. Eight months later, funds are flowing back into EM yield assets at a frantic pace once again. Facing negative rates in Europe and Japan as well as near-zero rates in almost all developed nations, yield-hungry investors have no choice but to return to EM.

However, investors are not focusing on growth or cheap labour - the traditional twin attractions EM used to offer in spades. They are simply drawn in by the relatively attractive yield like moths to a flame. This could lead to a bubble in the EM bond and stock markets. Valuations of traditional income stocks like utilities and telcos are approaching bubble levels. This crowded trade will not end well once the Fed hike rates because funds will pull out of EM as fast as they were poured in.

In my opinion, it is never prudent to generate more yield at the expense of taking on more risks. Remember the taper tantrums in 2013?

Balance risk and income