Q How do I choose the stocks for my equity portfolio?
A Stock selection has to do with understanding the sustainable growth potential of the companies.
Do the firms have pricing power? Do they have a solid brand? Have they consistently made cash profits? Do they have the strength to navigate extended periods of harsh business environment? Do they have good dependable management? Do their business practices exhibit ethical, socially responsible and governance standards? Finally, is the stock valued appropriately?
Stock selection is central to long- term investing and investors should seek companies with strong business fundamentals that have the ability to deliver income (yield) as well as growth (capital appreciation).
Investors are advised to use the tools available, such as SGX StockFacts, to assist with screening of various stocks and draw comparisons.
Q How do you choose the weight of different asset classes in the portfolios? Are there ideal weights?
A The asset allocation is determined by the risk-reward trade-off that each investor would like to achieve.
Before determining the most appropriate asset allocation, the panel drew up an Investment Policy Statement (IPS) for each investor.
This IPS details the investors' desired investment objectives and risk tolerance as well as investment constraints such as time horizon, liquidity needs and unique circumstances. Factors such as age, stage of career, lifestyle and financial obligations are also considered.
They form the basis to determine the most appropriate asset allocation strategy, including ideal weights, for each investor.
Q Given the current economic climate, specifically for the Straits Times Index (STI) which has dropped from 3,550 to about 2,800, has a bottom been reached already? With the low valuations of Singapore listed companies, is it a good time to invest? And should we be concerned with the timing to invest in the light of the market volatility?
A Low valuations by themselves are not a reason to invest, unless the economic environment and earnings growth are in sync too.
STI has performed on a par against Hang Seng Index and the broader S&P500 over the past year. However, looking at the two-, three- and five-year numbers, STI had underperformed both indices.
A positive indication is that the Singapore Purchasing Managers' Index rose above 50 last month for the first time in 15 months, signalling a recovery in manufacturing and potentially the economy. And at forward price-to-earnings multiples of about 12 to 13 times, the panel considers the STI to be quite fairly valued against other counterparts.
Still, timing the market is not a consistent ingredient of success for long-term investors. However, given the short-term global uncertainty from the potential geopolitical risks on the horizon, the panel has advised Ms Chee to hold off on investing fresh funds.
Q What sector of Reits would you recommend as a more defensive strategy, as the global economy slows down?
A In the year to date, S-Reits have outperformed developers, supported by soft sovereign yields and the strength of the Singdollar.
Physical market fundamentals remain subdued, but given the slew of game-changing events in the second half of this year and interest rates remaining soft in the next 12 months, S-Reits will continue to see buying interest, with investors looking beyond subdued distribution per unit (DPU) growth (+1.5 per cent in financial year 2016 and +0.3 per cent in financial year 2017) and focusing on S-Reits with more resilient earnings streams.
Older industrial buildings (for example, single-storey stand-alone factory buildings and cargo-lift warehouses) will be most impacted, especially with the likelihood of tenant movements either into newer facilities or as tenants downsize in response to slower demand.
For business parks, rents should stabilise this year despite supply growth of 15 per cent, partly due to the reclassification of high-tech space from the asset enhancement initiative at Viva Business City into business park space. Projects completing are substantially occupied (63 per cent this year). With no projects slated to be completed next year and in 2018, supply dynamics remain most favourable in this space. A key concern is that as office rents fall, tenants will shift away from existing business park space to better-located office space. While there has been evidence of some companies shifting (for example, Blackberry to Goldbell Towers, and IBM to Marina Bay Financial Centre), the converse also holds true, with office tenants electing to move to business parks due to more cost-effective rents.
In summary, the panel is positive on Reits specialising in industrials and shopping malls.
Q As Mr Wang is a retiree, when and how is he able to start withdrawing his gains or capital for his daily expenses? What is your strategy?
A Although Mr Wang is a retiree, he made it clear during our initial discussions that he doesn't require his portfolio to distribute income currently. This is because his wife is still working and he has other cash reserves. However, the portfolio has been designed with income distribution in mind, with the panel selecting stocks and bonds with decent dividend yields and coupons. The regular distribution of these dividends and coupons can then be used to fund daily expenses.