Top Invesment Ideas

September 2017

Equity funds

Fidelity Global Dividend Fund

This fund’s focus on high quality, dividend yielding stocks allows it to weather volatility and downside risks better than other equity funds. Should risk assets rebound, the fund’s equity orientation and strong focus on companies backed by earnings potential should help it capture more market upside relative to defensive funds. As such, investors can potentially achieve income, stability and growth in one fund. They may also reap attractive potential pay outs of approximately 3 per cent per annum, paid monthly.

Equity-Linked Convertible Investments

August was a mixed bag between defensive and cyclical names, with utilities and technology leading the winners, while energy and financials underperformed. There was some pressure to take profit, with seasonal effects partly contributing to the equity market’s softer performance for the month. Near term, in the absence of potential catalysts, the current consolidation phase may continue.

Our preference for a barbell approach between cyclical (prefer consumer discretionary and financials) and defensive sectors (prefer healthcare and telecom), remains.

We prefer Allergan (AGN US) with its diverse portfolio of defensible products, broad pipeline and future potential acquisitions to sustain healthy earnings growth, projected 12 per cent earnings CAGR next 5 years.

Singapore
Singapore’s property market remains one of the brighter spots, where there have been more transactions and en-bloc sales.

Given the rally in property developers’ share prices year to date, and as the pool of investible domestic large cap property stocks reduce over the years (Global Logistic Properties is the most recent example of privatization), we are selective and highlight CapitaLand (CAPL SP) as one of our preferred sector picks. The stock still trades below 1 times price to book and offers decent teens upside to our fair value.

Our neutral stance on S-REITs is maintained following the unexciting results season and stretched valuations.

Second quarter average dividend per unit (DPU) growth for the S-REITs sector was flat from a year ago, moderating from the 2.4 per cent increase registered in 1QFY2017. Dividend per unit growth was largely driven by the data centre, industrial and healthcare REITs, while offset by hospitality, office and retail REITs.

Given a number of index stocks that have already traded close to fair values, our preferred stock picks include Frasers Centrepoint Trust (FCT SP), Frasers Logistic Trust (FLT SP), Keppel DC REIT (KDCREIT SP) and Raffles Medical (RFMD SP).

Bonds

Buy Wing Tai Holdings 4.08% Perpetual

Wing Tai Holdings Ltd (WTH) reported lower revenues for FY2017, down 52 per cent due to a decline in revenue from development properties. With weaker revenues, WTH sank into an operating loss of S$11.8m for the full year (FY2016 operating profit: S$27.5m), mainly due to EBIT loss from development properties of S$15.7mn (FY2016 EBIT gain: S$22.9mn).

For 4QFY2017, net gearing improved to 2.4 per cent (3QFY2017: 6.3 per cent) due to cash collection from properties sold and the issuance of the S$150m perpetual bond. Going forward, with the recovery in the Singapore property market, we think that WTH may continue to move more units which may support revenues going forward. With a healthy balance sheet, we continue to hold WTH at a Neutral Issuer Profile.

Bond Funds

LionGlobal Short Duration Bond Fund allows investors to invest in investment grade bonds and receive a potential pay out of 2.5 per cent per annum (paid quarterly). This may be an ideal investment in an environment where interest rates are on the rise.

Investors looking for a high sustainable income and potential capital appreciation can consider the Pimco GIS Income Fund. The fund employs extension credit research and is diversified across 11 different sectors. It can tactically shift portfolio weightings to where Pimco believe attractive yield can be generated in different investment environment, and aims to pay out 4 per cent p.a, paid out monthly.

In the U.S. high yield space, investors may consider Allianz US High Yield Fund. The fund's investments are concentrated in the U.S. corporate bonds rated below investment grade. High yield bonds may be more resilient in the face of interest rate hikes. Also, improving fundamentals in the U.S. means the likelihood of defaults have decreased considerably. The fund aims to capture potential capital appreciation through its disciplined focus on security selection and robust investment process.

Mixed-Asset Funds

Lion-OCBC Global Core Fund provides exposure to globally diversified asset classes via cost efficient iShares ETFs. The fund typically invests into 10-15 iShares ETFs, and allow investors visibility on most or all their portfolio holdings.

Investors get to enjoy potential quarterly payouts, which could range between 3.5 to 4.5 per cent per annum, depending on the portfolio selected (Moderate or Growth) and the currency share class. Portfolio rebalancing is done periodically, typically every quarter or ad hoc in response to significant market risk events.

For investors with a preference for Asia, the Lion-Bank of Singapore Asia Income Fund may be able to provide income and capital growth via investments in a diversified portfolio of Asian equities and Exchange Traded Funds, and bonds. The fund employs a covered call strategy which reduces the impact of negative returns in a down market. Its flexibility to hold a higher proportion of its portfolio in cash (up to 30 per cent) can also help to mitigate risks.

Alternative Funds (For Premier Private Client only)

For investors who are looking for exposure into alternative assets in this rising rate environment, the Invesco US Senior Loan Fund could be a suitable hedge. Senior loans are less sensitive to interest rate changes because of their shorter duration and floating rates. This can lead to potentially more stable yields and better risk-adjusted returns for investors. In addition, Invesco has significant presence in all aspect of the bank loan market and has been managing bank loans for 27 years. The fund aims to pay out 4-5 per cent p.a. (monthly).

Currencies

The U.S. Dollar will continue to remain under pressure versus the Singapore Dollar. However, we believe it may already be too low to aggressively chase the short side. Much depends on the Federal Open Market Committee meeting on 20 September 2017, where balance sheet tapering plans may be announced.