Thursday 20 August 2015

Rebalancing of my portfolio

Recently, I did a little of rebalancing of my portfolio. In the worse case bear scenario, the STI will fall to close to the lows seen in the depths of the GFC, possibly around the 1500 levels. In order to prepare for this scenario, which I cannot predict when it will happen again, I need to set aside at least $30k of warchest to purchase STI ETFs as the index falls via the method of dollar cost averaging (DCA). Given that I only have about $50k available for investment purposes, I would have only $20k to spare for other focused (not so diversified) investments. Currently, I have IREIT Global and Croesus Retail Trust in my portfolio, taking up already the $20k to spare.

I would be a little more comfortable if I could free up at least $10k of money for further purchases in case the market goes wild. So I decided to divest IREIT Global. Of the 2, I would say both have very high gearings, actually Croesus is even higher, but because the recent results of IREIT showed a measly 2.21 cents for first half of the year, I decided to take risk is off IREIT. 2.21 cents for half a year works out to be about a yield of 6.5% based on my entry price of $0.675.

Croesus has a higher enticing yield of at least 7.5% based on my entry price, ceteris paribus. Of course, this is all in theory and distribution yield can be reduced by various factors, such as weakened income from assets, dilution of units, or an increase in interest expenses. 7.5% yield is not a great dividend yield to play with given there a much other plays offering more than 8% yield given the current correction among REIT/trust plays. But wait a minute, isn't the current yield offered by Croesus more than 8% yield? Doing simple maths, based on the recent quarter results, they declared a 1.9 cents distribution. Annualising, this works out to be an 8.25% yield based on my entry price.

Woah woah woah, hold your horses guys. Before jumping in to buy Croesus, there is something more to it. The results announcement next week will be the last distribution whereby they will pay out 100% of their income. This is set to decrease to 90% in the next period onwards. So because of this, my dividend yield accounting for this change results in a not so beautiful 7.5% yield. Well, me jumping into buying Croesus is a mistake I have made. Furthermore, I recently increased my holdings at a new entry price of $0.91, which increased my overall stake, but the average entry price is more or less the same. Poor judgement on my part :(

But the only consolation I can give myself now is that once the distribution is paid out to investors, my average price falls to $0.88, which would translate to a 7.8% yield, making things a little better to bear for the time being. With other counters offering about 8%, the difference is only about 0.2% yield.

To add to my misery, the price has corrected to $0.87 currently. I would say adding at $0.87 is definitely attractive. Given that the distribution announcement is only next week, a margin of safety of about 1.9 x 2 = 3.8 cents will soon be added to your entry price. When it goes ex-dividend, your average entry price would already be $0.83, which means more than 8%! FYI, for an 8% yield, your entry price has to be about $0.855.

Currently my dry powder to purchase more stocks has dwindled to almost nothing, considering I have plans for the last $30k warchest in case the STI goes to the worst case scenario. But having calculated I only require about $27k exactly to carry out the purchases, with the added fact that I believe this is unlikely to be another crisis like the GFC, I have some extra dry powder to play around. Perhaps I will stick around to see what is in store, and if valuations are compelling enough for a buy, then buy is what I will do.

Wish you readers best of luck in your investing journey!

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