Portfolio Update - August 2015

*As of 31 August 2015

Counter	No of Shares	Average Price	Amount Paid	Yield on cost(%)	Weightage
Croesus Retail Trust	10,000	0.9207	9,207.00	7.43	61.93%
OCBC Bank	300	9.1	2,730.00	4.00	18.36%
Accordia Golf Trust	1,500	0.61533	925.19	8.91	6.22%
Neratel	300	0.585	175.92	6.84	1.18%
Ascendas Hospitality	200	0.6175	123.79	8.29	0.83%
CapitaCommerical	200	1.325	265.63	6.15	1.79%
Asian Pay TV Trust	100	0.81	81.19	10.18	0.55%
Soilbuild Business REIT	200	0.8025	160.88	8.05	1.08%
STI ETF	400	2.99	1,197.00	3.00	8.05%
Total			14,866.60	6.53	100.00%

Total Invested Capital = $14,866.60

Total Expected Dividends/month = $80.90

Average Dividend Yield = 6.53%

As mentioned in the previous post, I took the opportunity of the market turmoil to add some stocks. Having liquidated half of Croesus Retail Trust, the funds released was used to pick up some stocks using the standard chartered platform. A variety of high-yield REITs/trusts were targeted to form an experimental micro-portfolio. I am very interested to see the performance of this micro-portfolio as the Fed begins to hike interest rates soon, particularly since it is a predominantly REITs/trusts portfolio.

In addition to this, I have partially used some of the funds to buy into OCBC bank, which I think has high growth potential as well as a good counterbalance against the micro-portfolio of REITs/trusts, since banks are likely to enjoy higher incomes from interest rate hikes while REITs/trusts are likely to face higher interest expenses.

Meantime, the strategy to buy STI ETF as the market breaks certain levels continues. This is where using standard chartered becomes absolutely useful. The ability to buy 100 shares each time without minimum commission is a great advantage here. I personally do not believe markets will plunge to the worst case scenario that I have prepared my funds for, so I expect not all available funds will be used when the market recovers. Well, having a conservative approach sometimes results in opportunity costs. Perhaps I will talk about this in another post.

Blue Black Monday on 24th August

I sure it was all on the news, the 100+ points drop in the STI in a single day, roughly 4% decline, the black Monday of 24th August 2015. For a post GFC investor in the stock market, I have only witnessed that once, and that was after S&P downgraded the US credit rating due to the persistent bickering between republicans and democrats with regards to the debt ceiling. The reaction of the STI was swift, crashing 100+ points within a day, and it continued to decline considerably the following days from 3200 to 2500, severely dampened by the lingering Euro Debt Crisis, which the root of the problem was not rectified since the days of the GFC.

It is because of this experience that I was a little nervous in adding positions on Black Monday itself, telling myself it may continue to decline the following days, just like what happened in 2011. And so I waited, the second day, the STI stayed weak in the morning before quickly rebounding higher, with many bargain hunters picking up stocks in the market. I continued to wait for a couple of days, and the market consistently posted gains each day since, now it has tested the psychological point of 3000, but closed 50 points below.

So have I missed the boat?

Well, this is probably one of the most difficult questions to answer. If I knew, I would have quit my job and trade full time already. Based on technicals, the 3000 level is the obstacle to watch, a break of this level would possibly lead to some strength ahead. However, failure to break that might imply weakness or perhaps trading range bound just below 3000. But then again, this are just probabilities and I would prefer to think on the fundamentals instead of technicals in weak market.

So what has Dividend Simpleton done in this current market turmoil?

After thinking deeply on my poor market timing with Croesus Retail Trust, it is time to lick my wounds and re-strategise. I had been rather successful in the past 1-2 years in market timing, but I would not try to leave that to chance anymore. I have decided on using Dollar-Cost Averaging (DCA) as a suitable way to sort of market time without putting everything in at one go. And of course the only platform available in the market for which I can do so without incurring heavy commissions is with Standard Chartered Bank (SCB). Yes, I know shares are stored in the custodian account, and yes I won't be able to go AGMs or vote in them. These are valid concerns but I am alright having them stored in a custodian account, so long as it is reputable bank with obligations to their clients. I am also alright with not having to vote or going AGMs, my minority vote would most likely be trampled on by the majority stakeholders anyway. My main target in owning shares is to generate wealth via growth/income, not to go AGMs and eat free food. Furthermore, information about AGMs are widely available in the net. As a working adult, I would not be able to find time to go down anyway.

I feel the benefit of DCA is enormous, it takes away market timing from the equation, and allows for a more mechanical versus an emotional effect on trades made. Also, if putting shares in the custodian account worries you, you are given the option to transfer the shares to CDP, of course with a fee. I did a rough check up and the fee is $10.70 per 1000 shares capped at a maximum of $107. Plus, CDP charges another $10 or so for transferring shares in. So say you have 1000 shares, you have to incur a charge of $20.70 to transfer the shares, roughly close to the normal brokerage fees you pay each time. The costs involved is higher than if you were to buy it off the market one time with the normal brokerage, but it does not account for the potential losses you may make by market timing. So I would prefer to pay the fees if I want it shifted to the CDP account. For now, a custodian account works well for me.

I better get back to the question posed earlier before I start deviating from the question. Well, as the market declined from it peak of 3540, I had a small plan to purchase STI ETFs once it has hit certain levels, perhaps I will discuss this more in another post. At the current moment, the market has only allowed me to buy 200 shares of STI ETFs, tucked away in the SCB custodian account. I would be gladly willing to buy more should the market turn for the worst.

In addition, I have accumulated 300 shares in OCBC at $9.05 on Friday, just before Black Monday. Bad timing yes, seriously all these experiences really reinforced me in the belief of DCA. Well, the price I paid for OCBC seems reasonable to me, with PE slightly below 10 and PB at only 1.14. Of course, crises has easily knocked OCBC below its book value before, but I would be more than willing to buy more if the market presents a better entry point. Just nice, Lim and Tan brokerage is still having the small lots promotion, so I could make the trade paying just $10 in commissions.

I also took the chance to nibble on some income shares, mostly 200 or less shares using the SCB account. Capital invested is minimal and I am interested to see how this micro portfolio would perform longer term. Furthermore, the capital invested are mainly profits earned from my bigger trades in the pervious years, so you can say perhaps these small investments are kind of "free". Some of the shares I have nibbled are Neratel, Ascendas Hospitality, Capitaland Commercial REIT, Soilbuild Biz REIT, Accordia Golf Trust and Asian Pay TV. As you can see, the focus is mainly on high-yield counters, with almost all having a yield of 8% or more with the exception of Neratel and Capitaland Commercial. Neratel boasts a yield of the higher end of 6%, but I would gladly pick some, given the net cash position it has, which is actually absent from almost all the other counters, given they have to take on debt to establish the high cash flows. Capitaland Commercial REIT represents some value in my view, though not so much the dividend yield, but the fundamentals remain resilient and attractive given the amount it has corrected recently. I could draw similarities with the fundamentals of Keppel DC REIT, like low gearing, high interest coverage ratio and low average interest rates. Both dangle similar dividend yields, but the risk to DPU is a tad higher with Capitaland Commercial given that several tenants in its properties are shifting out of its premises for cheaper alternatives outside of the city. If the market offers a greater margin of safety, I may add on to my positions.

As of now, it is a waiting game.

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!

Initiated a long position in IREIT Global

I have been watching IREIT for quite a while now after it hogged the headlines of having a massive rights issue which would allow for the properties it owned to increase by 100%, basically twice the initial size when it IPO-ed in late 2014. Gearing has increased to an uncomfortable 43.7%, and total number of units have increased, thereby increasing the liquidity of the units traded in the market.

As a new investor, we should not be so worried about the dilutive effects of the rights issue, nor how much units would be added to the market. Instead, what we need to check is the theoretical ex-rights price (TERP) after the rights issue to have a rough gauge of what the price should correct to after the capital action, and from there work out a safer point of entry. Gearing and the new book value stays relevant, and of course the dividend yield after the rights issue. As I mentioned earlier, gearing has increased to 43.7%, and the current book value has reduced to $0.633, as taken from the company website. Dividend yield should be about 8% when one enters at a TERP price of $0.66, so anything below that price should provide a safe point of entry.

However, today I bought some units of IREIT at a price of $0.675, a good 1.5 cents from the safe point of entry of $0.66. First of all, IREIT Global is set to announce its results on 13 August 2015 after markets close, and I believe that the anticipation of the results and the accompanying dividend declaration to be supportive of any weaknesses in IREIT's share price. Since IREIT shares have been rather weak lately with its shares hitting the recent low of $0.675 for the third time, I took the opportunity to load up on some shares. Do note that I am fairly confident to nibble but not confident enough to engage in a large scale gobbling like I did with Cache Logistics Trust earlier. In fact, it was a lesson learnt from the previous trade with Cache which taught me not to be overly confident when sentiments have turned broadly sour across the interest-rate sensitive stocks like REITs. The situation now has not changed from several weeks ago, fears of interest rate hikes continued to plague yield stocks, including telco stocks and even other stocks which dragged down the index today. It would be brave but foolish to fight against the tide so a small position should suffice for now. 

I had attempted to use the standard chartered platform to execute my trade a notch higher at $0.68 today, but prices started to correct so I decided to leave my order for $0.675 at Lim and Tan to be executed instead. The sell down was stronger than anticipated, with the entire buy volume booked at some point of the day.

Now lets wait for another 2 more days of uncertainty before the results release. If all goes well, I may be able to exit with a profit with no money put down using the contra function unique to the Singapore market.

Good luck to me then!

Singapore's 10 Richest People

Some of us would be curious who are the richest people in Singapore. Now here we have it, the top 10 richest in Singapore.

10) Mr Raj Kumar and Kishin RK

Net Worth: $2.4 Billion

Source of Wealth: Real Estate

Residence: Singapore

Citizenship: Singapore

9) Kuok Khoon Hong

Net Worth: $2.6 Billion

Source of Wealth: Palm Oil

Residence: Singapore

Citizenship: Singapore

8) Mr Richard Chandler

Net Worth: $2.6 Billion

Source of Wealth: Investments

Residence: Singapore

Citizenship: New Zealand

7) Kwee Brothers

Net Worth: $5.2 Billion

Source of Wealth: Real Estate

Residence: Singapore

Citizenship: Singapore

6) Mr Eduardo Saverin

Net Worth: $5.4 Billion

Source of Wealth: Facebook

Residence: Singapore

Citizenship: Brazil

5) Wee Cho Yaw

Net Worth: $5.5 Billion

Source of Wealth: Banking

Residence: Singapore

Citizenship: Singapore

4) Khoo Family

Net Worth: $6.4 Billion

Source of Wealth: Banking

Residence: Singapore

Citizenship: Singapore

3) Mr Goh Cheng Liang

Net Worth: $6.9 Billion

Source of Wealth: Paints

Residence: Singapore

Citizenship: Singapore

2) Kwek Leng Beng

Net Worth: $7.2 Billion

Source of Wealth: Real Estate

Residence: Singapore

Citizenship: Singapore

1) Ng Family

Net Worth: $8.7 Billion

Source of Wealth: Real Estate

Residence: Singapore

Citizenship: Singapore

We can take away certain aspects and qualities these rich people possess which enabled them to get so rich. The varied sources of wealth goes to show that there is not just one fixed way/method to riches. Yet, all of them in the list possesses the grit and ability to take risks which may or may no wipe out their entire wealth, and in the process, managed to make it at the end. They took action and made their fortune, how about you? Have you taken action yet?

Portfolio Update - July 2015

*As of 31 July 2015

	Counters	No. of Shares	Average Price (SGD)	Total Capital Invested (SGD)
1.	Croesus Retail Trust	10,000	0.9282	9,282.00
	Cash Reserves and Equivalents			40,718.00
	Total SGD			50,000.00

Total Invested Capital = $9,282.00

Total Expected Dividends/month = $760.00*

Average Dividend Yield = 8.19%

*Based on recent annualised dividend of 1.9 cents (Q3)

To sum it all, the month of July was basically a bull trap. From the relief of the Greek outcome, to the plunging of the index way below the previous lows tested during the depths of the Greek saga.

The STI closed at a low not seen since early last year; with intraday trading hammering the STI to as low as 3,184.57. This was surprising given the not so heavy sell-offs from the other indices around the world. Basically, the hopeful bulls emerging from the Greek saga was tactically besieged by the bears which completely outnumbered them. There was clearly fear in the markets today, with all most hopeful bulls running for cover. Opportunity or downtrend to continue? We shall see soon.

As mentioned in my previous post, I have divested all stakes in REITs, some which turned out to be bad calls and some which turned out to be good calls. 

Lets start with the bad call. Well, the bad call definitely would have to be the divestment of Keppel DC REIT. Even up till now, the REIT is still trading way above my liquidated price, which may be currently in consolidation phase. Once again, strong fundamentals of the REIT continued to support its share prices, despite poor sentiments due to interest rate hike uncertainties. 

The majority of my capital tied up with Cache Logistics Trust was recovered in full, along with a small almost negligible gain. This turned out to be a good call, as the REIT is now trading at $1.08/1.085, which represents a possible loss of almost $1.5k if I had failed to exercise steps to protect my capital.

Moving on, some of you might have noticed I have added a stake in Croesus Retail Trust, which is slated to report results on the 26 August 2015. Based on the last quarter dividend payout of 1.9 cents, I am expecting at least 3.8 cents dividend. As I am still cautious on the poor sentiment on assets sensitive to interest rate hikes, which is more or less expected sooner or later, I am seeking to minimise heavy exposure to such assets as the downtrend might continue. In order to have a reasonable safety margin, I would demand at least 8% yield for risk taken. I believe Croesus Retail Trust has fulfilled my requirement for that. 

Even so, I would prefer to watch from the sidelines while the volatile markets rage on, as capital preservation would be absolutely essential to ensure adequate capital for possible compelling opportunities which may present itself anytime.

Invest and sleep well :)

PS: Observant readers may notice that the total amount of cash allocated for investment purposes have fallen from the last month. This is because I have allocated some cash for a heavy budget coming up. I am in the process of planning an overseas trip along with miscellaneous payments including insurance, wedding packets and some one-off big ticket items which demands significant amount of funds.

Divestment of Cache Logistics and Keppel DC REIT

I did a portfolio update back at the end of last month about what I intended to do with the existing holdings. I did a write up mentioning how I would close out the Keppel DC REIT and/or Cache Logistics Trust positions if share prices ran up. And so it happened for Keppel DC REIT right after the announcement of strong results, the next morning the share prices surged, rising from $1.06 to $1.08 in a day. This was in contrast to the languishing REIT universe, perhaps due to the impending interest rate hikes.

My take on this is that until the rate hike is announced, it is likely that the REITs will continue to stay weak and subdued, with fear stemming from the uncertainties of the rate hike timing. Markets hate uncertainties, and will punish those assets perceived to do badly in the worst case scenario. 

Here are my opinions on why we observed the diverging sentiments Keppel DC as opposed to other REITs.

Keppel DC REIT

Keppel DC REIT is probably perceived to do well comparatively against the other REITs, given its strong balance sheet and fundamentals. The phenomenon we noticed I believe is due to funds moving out of REITs which were perceived to do badly in rising interest rates into cash-rich firms or companies with strong fundamentals. As I had mentioned in a previous post, in an environment of rising interest rates, REITs with a strong interest coverage ratio, with lower average debt costs and low gearing would do comparatively better than other REITs. This are the 3 key criteria I look out for in REITs in a rising interest rate environment, and Keppel DC REIT checked all the boxes. For the reasons on why Keppel DC REIT, check out my previous post here.

So if I felt that Keppel DC REIT would do well, why did I divest? Well, on hindsight, it was more of a mis-timing on my part, with REITs doing poorly all around, the expectation that this rally was short-lived led me to believe that Keppel DC REIT would test the previous high of $1.08 and fail to break out. So I took profit at $1.075 and soon realised a few days later that it was a mistake. I had also wrongly predicted that the REIT would stay weak until the rate hike, which is widely expected to be announced in September, therefore in turn allows me an opportunity of a better entry to get back in. However, the stock defied gravity of negative REIT sentiments to surge on, even continuing to surge after it went ex-dividend. I don't believe in buying higher prices which may be prone to huge corrections after a strong rally, and so there was I, kicking myself for letting go too early.

Cache Logistics Trust

Cache Logistics was a disappointment on many fronts. I had wrongly predicted that prices would rise from the previous low of $1.13/1.135 towards the high of $1.20 which happened many times before, clearly obvious in its share price chart.

I had also ridden on this for a couple of times successfully, buying at $1.15 back in October 2014 to selling at $1.19 within the same month. I repeated my tactics in early 2015, buying Cache Logistics at $1.145 per share, and selling at $1.20 after holding for slightly more than a month. And then most recently in mid March, I took advantage of the FOMC meeting jitters to buy at $1.15 again and selling the shares at $1.20 after Cache Logistics results were announced.

This time, I tried another time, putting in 3 times the usual amount of capital and waiting for a strong rebound in prices. The moment came a few weeks later, but the strength in the rally was clearly weakened by the hidden selling pressure. I had realised this as early as towards the end of June, when selling pressure continued to pile onto Cache Logistics Trust, selling into strength of any uptick in prices. This was unlike the uptrend movement I experienced previously, and this got me a little suspicious. A quick check with insider trades of Cache Logistics Trust revealed the following.

As if the already weak sentiments of REITs are not enough, there were many insiders selling their stakes into the market, BNY Mellon was one of the major sellers along with sponsor CWT Limited and C & P Holdings selling rather large stakes as well. A quick check further earlier in history showed CWT and C & P Holdings did sell stakes before, albeit always together, but at much lower stakes than recently. The situation was further exacerbated by BNY Mellon and the other investment firms selling their stakes all within a day. The large amount of shares suddenly introduced into the market has allowed more shares in circulation, which means any buying pressure would be absorbed by the large amount of shares sold into the market. I had observed liquidity of Cache Logistics shares had always been lightly traded, with only about 4 million shares traded in its highest volume day, usually the average was about 500k shares a day worth of volume. This time volumes were higher, (highest almost 8 million shares traded!) which validates my observation.

If we look at the recent volumes to the right of my cursor, average volumes are noticeably higher since the beginning of June 2015. This is in contrast to the volumes experienced to the left of my cursor in the earlier periods.

Furthermore, the recent quarterly results revealed weaker fundamentals which I have not expected. The distribution was announced to be the same steady amount of 2.140 cents this quarter, but do not let the numbers fool you into another quarter of steady DPU (distributions per unit). This quarter's distribution includes the contribution from the recently acquired Australian properties as well as a partial capital distribution from the divestment of the Kim Seng warehouse on top of the usual income from its existing properties. One would expect distributions to be much higher than the usual 2.146 cents the previous quarter, but alas the distribution was a disappointing 2.140 cents. This is after it has geared up to an uncomfortable 36+% gearing, which leaves little room for growth in future DPU. Further investigation into the announcement of the Australian properties acquisitions revealed nothing was mentioned about the properties being yield-accretive, instead mainly focusing on how this diversifies the portfolio of assets geographically. Therefore, I can conclude the acquisition resulted in Cache Logistics be ing much higher geared with no net improvement in distribution, something I am very disappointed with. The results also revealed the lower distributions to be due to the conversion of properties from single tenanted to multi-tenanted, and the resultant higher expenses of the conversions. One good point to take from this, however, is that the conversion expenses is likely to be a one-off expense and not likely to affect the sustainability of the DPU.

Perhaps I am reading too much into it, but the price movement of the counter persistently showed it was clearly rather weak, failing to breach the first hurdle, the resistance of $1.16. In the earlier sessions, it was not too long before the resistance was breached, before easily gaining ground towards the stronger resistance of $1.20. As we can see from the price chart, the resistance of $1.16 was tested 3 times but failed to break through. I had tried to sell my holdings at this level multiple times, but to no avail. So I did the next best thing, I sold my entire stake in Cache Logistics at $1.155 to preserve my capital as I have a feeling once the stock goes ex-dividend, there will be persistent weakness in the stock. Will that happen? Only time will tell, and I will be ready to get back in once the price is right.

I did not gain much from the trade, but it was a worthy lesson for me. Doing the proper research into insider trades as well as diversifying instead of putting all your eggs in one basket even when you feel pretty sure that it is going your way is inevitably taking on a large risk. Only one man has been able to do that, and do it so well, and that man is Warren Buffett. I definitely cannot say I did as deep a research into a company as he did, so its much better for me to diversify instead. I am perfectly alright with lower but yet decent returns.