Friday, March 27, 2015

Recent Action - FraserCenterPoint Trust (FCT)

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.


FCT

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.


FCT Valuation

Conclusion

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.

10 comments:

  1. The Singapore Savings Bond will give Reits a run for their money.

    ReplyDelete
    Replies
    1. Hi EH

      I think they will give a nice run fight to all the dividend yield counters and yes I think Reits would be affected quite severely by this news.

      Delete
  2. hi can u share the maybank KE report? dickiechu@gmail.com thanks.

    ReplyDelete
    Replies
    1. Hi Richard

      Ive emailed to your gmail as above.

      Delete
  3. Hi B,

    Just like u, I did that before, as in sell partially. Mostly is price I think a bit high and good to take profits and also re-balance my holdings so that the bigges share holdings are not over-concentrated.

    However I also asked myself. If I think price is high, why do I not sell everything? Later buy back some when price drop.

    Or I am unsure... ? I am really referring to myself having this same practice as u and still thinking if it is the correct strategy?

    Your thoughts?

    ReplyDelete
    Replies
    1. Hi Rolf

      Yeah, actually selling is a much harder form of art than buying so I can't proclaim that what I did is going to be correct.

      But what I was thinking behind my idea to sell partially was that I am still very bullish on the counter over the long term. In other words, I am pretty optimistic about the fundamentals in the long run but do not like how they are being priced in the market right now, which I think does present a little bit of that overvalued factor I was thinking. Hence, the idea to sell partially so even if it goes up or down, I'll still be around to watch that happen and think of the next step.

      It's not necessarily the right process but that's what I am thinking when I decide to sell them. You think?

      Delete
    2. hmm... I use to think the same and just did the same recently for Suntec, but then after awhile I think somemore, I start to have doubts. If we are bullish over long run why should we sell. Unless we sell to buy something that is better investment. But then again, if u sell, then must well sell all, and put it all into the one, you think is better stock.

      Therefore I start to conclude to myself my action ... it may be a state of unsure in the inner voice, yet the outer voice is kinda of sure...

      eventually it's still unsure!

      Delete
  4. Hi B,

    How about CMT? Do you feel that it is also overvalued at this moment? My average price is about $1.94.

    KungFu~

    ReplyDelete
    Replies
    1. Hi Kungfu

      I would certainly not want to be adding at current price of around $2.20+ right now. They are way above valuation in terms of P/NAV and yield below the long term average mean so only a brave person would want to be adding right now. They can certainly keep going up but the margin of safety is clearly missing from the equation.

      With the many new scheme coming up from the SSB bonds and so on, I wonder how long would Reits remain to be attractive in view of these much lower risk proposition.

      Delete
    2. Hi B,

      Thanks for your reply, actually i was wondering if I should do a divest instead of adding in at this moment.

      Since there could be a high chance of a knee jerk reaction when the Fed really started to raise the interest rates.

      Looks like it is still going up as what you've mentioned, at 2.24 now~

      KungFu~

      Delete

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