In my previous post about a month ago, I mentioned that I am in the midst of building up some cash holdings (original article here) as I feel the market is somewhat overheated and is due for a correction. I continue reducing my portfolio and in particular for Reits as I feel they are currently in a sector that are exposed to the highest risk (rising interest rate) coupled with an over-valuations (in terms of yield and P/BV) as a whole. I'll explain this in greater detail later.
I have reduced my holdings in FraserCenterPoint Trust (FCT) by selling off 6,000 shares this morning at a price of $2.05. FCT still remains one of my core holdings at 24,000 shares left in the portfolio. Those who has followed my blog from the beginning will know that FCT has been my baby counter right from the beginning when I purchased them at a price of $1.40 during the Euro crisis. I managed to average up a few times throughout these few years and the result has not been disappointing so far. In fact, I think the long term fundamentals is still extremely solid with the mega Woodlands and Yishun projects to come by 2020, which will provide an uplift to the overall portfolio.
I will not be going into an extremely detailed post at this time for my decision to sell (buy) as I've done in the past for FCT. If you are interested in reading them, you can look up the past articles here:
FCT AGM - 2014
FCT acquires Changi City Point (Tenant Mix)
What's next for FCT?
Overall S-Reits Sector
The whole S-Reits sector is rather overheated and this is not backed without evidence.
|Overall S-Reits Valuation|
Based on the latest report from Maybank as of Mar 2015, we can see that both metrics for the whole sector of S-Reits in general are overheating. From a yield perspective, the sectors are now trading at almost -1 Standard Deviation away from the average mean over the past 8 years data. The last time we've seen the yield being compressed this low was during the pre-crisis level of 2007 and the recent multi-year peak in 2013, where the sectors then contracted to a more reasonable yield of where they are now.
Another metric using the book value is also showing that the sectors are now trading at a valuation much higher than +1 SD from the mean. The last time it went beyond this high was during the peak of 2007 and 2013 as well where the sectors then retreated aggressively.
In fact, if we take a look across individual Reits, they are all showing the same pattern as the general market right now.
Take FCT for example.
The yield metrics is showing that it is currently trading at an almost -1 SD away from the mean which is at similar to what it is trading during 2013. For the book value, they are trading just slightly above the +1 SD which is a sign that it is also at an overheated level.
My personal take right now is that at current valuation I am rather bearish on S-Reits right now.
The more those analysts are upgrading their price target on S-Reits, the higher the chances that I am going to lock in those profits and reduce my holdings in S-Reits.
The overall sectors are still yielding an attractive proposition of around 5.44% right now, and if you are a hardcore income investors, you are probably still going to like the sectors very much. We are still in the low interest rate environment and surely but slowly see rates moving up, even for things like FD, bank savings and the recently announced government bonds. For me, I'd rather weigh in these factors and use my judgement in coming up with a risk-adjusted return to justify my action.
Many people are acquainted with buying low and selling high, but I think we are in a situation where people are buying high and hoping to sell higher. The latter is much more risky and only the best party pooper who can slip in and out quickly will avoid the damage. For the many others, it can be a horrible situation to be in.
So what do you think? I am sure some people will disagree with me, but would like to hear some constructive views from the other side of the fence.