Fed leaves rate unchanged, what it means to us as investors

The most recent inflation data in the US exceeded last year's figures, aligning with market expectations that the May FOMC meeting would not announce a rate cut. As anticipated, the Federal Reserve Chair refrained from lowering rates and notably indicated that a rate hike is unlikely.

Given this insight from the Fed Chair, let's examine historical instances of rate hikes and their impact on the S&P 500 index when rates remained steady versus when rate cuts were eventually implemented.

Below is the chart from Forbes, 

In the chart, the historical rate hike cycles are depicted alongside the performance of the S&P 500 index during various periods when the Federal Reserve paused its rate hikes. It is observed that the S&P 500 exhibited predominantly positive returns during these pause periods before a rate cut.

Then the next question to ask, is the S&P500 now expensive? Below is the chart from gurufocus on the Shiller PE ratio of the S&P500.

As depicted in the chart, the S&P 500 has corrected to a level within one standard deviation (1SD). At this juncture, it is clear that the market is not offering cheap valuations.

Nevertheless, the market is unpredictable, echoing the sentiments of the late John Bogle, who emphasized the importance of staying the course in investing and adhering to a sound asset allocation strategy.

  

Should you invest in this fund that gives you 5% yield?

This ETF is targeting to be listed on 13May 2024, and the name of the ETF is 'LION-OCBC SECURITIES APAC FINANCIALS DIVIDEND PLUS ETF'. As indicated in the website, the ETF will be paying 5% dividend yield for the first 2 years. What will I be doing?

Let's look at what I like about this ETF:

1. Well known brand with LION-OCBC, and top financial institutions.
2. Decent 5% dividend yield for first 2 years, and if it can continue.
3. Predictable payout with quarterly distribution.
4. Diversify (almost equal weightage) across major economic countries such as Singapore, Japan, Australia, Korea, Hong Kong, Malaysia, etc.
5. Exposure to market (japan, korea, Australia) which is difficult to access for retail investors.

Now, what I dont like about this ETF:

1. Concentration in only Financial sector in these markets.
2. Most of the counters in the ETF are trading close to or at all time high.
3. How will the Fed rate cut affect this ETF.
4. Underlying index is paying a dividend yield of 5.91%.
5. From the ETF website it stated as a disclaimer that the distributions are not guaranteed.

For those who are happy with the 5% dividend yield, this is not a bad choice to have exposure to these markets.

For those who wants a little more and can wait, given that the underlying index has a past dividend yield range of 4.2% to 5.91%, maybe more attractive to enter when the yield is more than 5.5%.

Please do your own due diligence, this is not an investment advice.

Great Global Stocks Sale Again!!!

How things have change over a year, it crashed from fairly optimism to now deep pessimism. Looking at the amount of funds that is seeking for cover in T-bills, SSB and Banks fixed deposits, people are parking their funds into safe haven.

However, many studies have shown that investing in stock is still the instrument to beat inflation in long term. The key here is long term.

As the market corrected and keep correcting every time Fed increase interest rates, deep discount value of some stocks have surfaced. 

Global indexes such as the S&P500, QQQ and world index has corrected to close to 20%. From the TA, S&P500 and World index is showing signs of reversal, and there is divergence on MACD on weekly candles. This show strength in the medium term.

Locally, there are also number of counters that have presented deep discounted value as well.

Will these stock price drop further, it may, nobody knows. Thus, as a investor, one should not expand all the bullets at one go. Always remember that market is always right. This is not an advise to Buy or Sell, do your own diligence.  

Blueprint to build your own STI index - Avg 10yr Annualised Return 12.6%

SGX website provides some good information for retail investors, and one of the few articles published in the website was the report on the 10 year annualised return of the local stocks. The 10yr annualised returns of any stock is a good indicator of how the stock had performed over the last 10 years. If you coupled this with the rule 72, this is a very powerful concept.

The S&P500 10 year annualised returns is around 13.6%. What does this mean? This mean that the amount invested in the S&P500 will double every 5.3 years.

I am writing this article so that my kids, in time to come when they are interested in investing, has something to guide them. 

Below is the table that shows the 10yrs annualised returns for each of the local stock,

Do note that the Capital mall is now CICT.

The last column (index composition) is the weightage of your total fund that you will be investing, the ones with the higher annualised returns will have bigger weightage. You can also choose not to have any weightage at all.

Should you be buying all these now. Of course NOT. You need to value each of the stocks, and buy only when their price drop into the discounted value zone. One of the quick test is using the 5 years avg dividend. At the current price, there are few stocks in the discounted territory.

The avg return from this DIY index is 12.6%. What does this mean?

This means that every 6 years, your invested amount becomes double. Apart from buy S&P500 ETF, here is another alternative to your investing journey.

Alibaba - Is it time to buy ??

 Happy National Day Singapore.

It is a long weekend here and I just want to share my thoughts on this counter BABA listed in NYSE and as well as HKSE (9988). There have been many sharing of is it time to buy in the social media when Alibaba crashed more than 40% due to the hard handed by the Chinese Government. I am not interested in any country's politics thus I shall not comment on this aspect. I am more interested in if there are coffee money to be made from this crash.

In stock investment, all of us know that there are risks involved as the equities returns are high. This principle applies to all market, including the chinese. Having understood this, then let's look from FA and TA perspective at how we can take advantage of this crash using our spare cash. By spare cash, I mean you dont lose sleep if you lose the entire stake.

Fundamental Analysis

Over the last 5 years, on average the EPS is about 5.5. This is about 30% discount to the last reported earnings. This is to ensure there is some margin of safety.  Using this; the estimated stock price at

PE 22 = USD 122

PE 34 = USD 188

PE 45 = USD 247

So at the current price, would you go in??

Technical Analysis

Looking at the TA, there are no indications that the correction has slowed or stopping. Do a comparison with Jan 2019 when the correction happened and it reversed up when MA and TA indicators moved up.

The above is to record my thought process for me to reference in future, not a recommendation of any sort. 

Q1 2021 Portfolio Updates

 Market continued its uptrend from 2020, and with the Covid-19 situation stabilising, the old economy counters have started to recover as well. Overall, the local market had moved up along with the rest of the global indexes. As such, some of the sectors are not as cheap as they were during the massive correction last year.

Transactions

With the recent run up, I took profit on the following counters.

• Kimly
• DBS
• OCBC (Partial)
• Exxon
• STI ETF (Partial)

Some of the counters were mentioned in this post. For DBS, using 5 years average dividend of $1.09, at $25 it is fairly valued. Of course it can go higher but I am happy with my profit.

The reason that I took profit is they have given me decent returns, most up to 5 years worth of dividend that I would have collected. With the sale, I can use it to invest in counters unloved (below) at the moment. The lesson learnt from the March 2020 correction is that one must have enough bullets to capitalise.

Unloved Counters

Using the profits from the sale, I invested into these counters.

• Keppel Reits
• CDL HTrust
• Jardine C&C
• Manulife US Reits
• Starhill Global Reits
• Yanlord

Reits sector performed badly last year and investors avoided them. The leading ones like the Industrial Reits managed to hold well and most are already fully valued. However, the Hospitality, Office and Retail Reits are still in bad shape. This gives opportunity for us to invest, collect dividend while waiting for market to notice them again.

Jardine C&C is a counter in the STI index, using the 5 years average dividend of SGD$1.07, at 4% yield, it is still undervalue. 

The irony is when market is heavily corrected, everyone is worried. And when the market is moving up every other day, everyone is talking about investing for dividend. It is only during tough times that the yield is attractive as the price is low.

Trading

I have started trading for few months now, with small amount, this is to capitalise on recovery play and when market is moving up. These are counters that I have bought;

• Raffles Medical
• SPH
• China Sunsine
• Genting

Thanks for reading.

Above information does not constitute investment advice or recommendations.

These Blue Chips gave STI a strong start in 2021

 If you still remember, STI was the worst performing stock in this region last year. And how things have changed, it has started 2021 on a strong foot hold. As the banks constitute the highest weight, they have helped STI to propel forward given their recent very strong rally.

Below are the 2 bank counters that I owned and a laggard which has started to catch up. Given the flush in liquidity and returned confidence with the vaccine, they may rally higher. Let's see if the uptrend can still continue.

DBS

This counter has rallied the most, and as such, it is no longer cheap as compared to few months ago.

 

OCBC

Like DBS, this counter has rallied in the last few months. Last week, it gapped up for 2 days, which means that investors are scrambling to want a stake in this counter. However, at 11x earnings, it is neither cheap nor expensive.

Jardine C&C

Though this counter is also in the STI index, it is the poorer cousin of these 3 counters. The counter has not moved much, but last week it breakout of the key resistance strongly. At about 10x earnings, it has not been fully valued.

Happy and prosperous investing all, open eyes BIG BIG. 养 套 杀 。