Monday, November 14, 2016

Reits Get Trumped!!!

It's just been 4 days since Trump was elected as the new President and he's done what the current term politicians cannot do in 8 years, i.e increase inflation.

Trump policies are pro-growth businesses and it is forecast that inflation and interest rates will rise in tandem accordingly.

This is probably the main reason why defensive counters like telcos, utilities and reits are getting hammered since Trump won the election and you can see that from my watchlist below.




A lot of people are speculating that the drop is due to the possible rate hike in December. I think it's way a lot longer and deeper than that. If you look at how the 2, 10 and 30 years US treasury yields are moving, it's saying a lot on the dynamics of what we are entering as a new environment phase of normalized interest rates.

The higher risk free rate is going to go, it would require a similarly higher yield on the equities to trade the premium difference. 


Look out for the 30 year yield as it attempts to hit 3% soon

If you are an income-focused investor like me, this is absolutely great stuff going on because now we can finally expect higher yields to come for many risk-off assets that we are owning on our plates. If my lifestyle requires 6% in the past and I can get higher than that in the new environment phase, then I'd be a happier person.

Is this now a good time to enter?

Again, it depends on how much comfort are you willing to hold for that income yield right now. This is a lot different from the bargain we see back in January this year because that is based on a China fear and today a whole new phase is taking place.

It also depends on how much warchest we are currently holding in our pocket to take advantage of the situation. I am currently at about 52% cash so I might nibble quite a bit along the way and increase the yield on my portfolio. But if you are almost dry, I'd reckon you wait until the 30 year treasury rate hits 3%, which could happen almost anytime by end of this week given the rate it is running.

What To Nibble?

I had someone asking me this question.

It's difficult to choose across the sea of reds since many seem lucrative from an eye level.

Personally, I am on the queue for CMT to nibble at a range of about $1.86 to $1.88 as it is currently right at their 1x book value, which is a great valuation to buy over the last 10 years. Again, we've been in the low interest rate environment almost for the last 8 years, so it's difficult to adjust to the new normalized valuation. FCT is also another one which almost hits their book value, so I'm most likely camping in the first round at 1.90, which is right at their book value.

I'm also likely to add my second round for FLT if it hits $0.86. I have initiated a position last week at $0.925 in what I thought to be a great long term addition to the portfolio. I'll speak more about why I buy this in my separate posts.

Someone asked me about CCT today but I doubt I like it at current valuation for now. It's still currently hovering at a rather "not cheap" valuation, relatively short lease for their office and a rather competitively low cap rates for their Singapore office. Add that together with the supply glut and you can see why they'd be in a lot of trouble in the near term.

I guess no point guessing where the market is going to go, let's see from here if we can turn that into an opportunity instead.


6 comments:

  1. Hi,

    I am impressed by your discipline to go into markets when things are not rosy.

    Allow me to ask you a question on this sentence: "The higher risk free rate is going to go, it would require a similarly higher yield on the equities to trade the premium difference." So, why US equities are still on the uptrend?
    I personally guess that Trump's policy are predicted to have higher interest rate which is not favourable to REITS as mentioned by investment moats. I personally agree with investment moats is that market could be factoring a high chance of rate hikes next year which I do not think is a definite case.

    ReplyDelete
    Replies
    1. Hi Blanc fable

      Thanks for your comment.

      The US equities are rising but that's because of the banks and the growth stocks. If you look at the yield play like telcos or utilities, the US equities are lagging as well.

      I guess you and investmentmoats are right, its an environment which is not favorable to reits but we could be seeing a different phase of normalized rates. We are afterall so being used to seeing reits at such high levels that suddenly things look an attractive buy at this point for many.

      Delete
  2. Hi,

    Hope I can find the guts to invest like you. I really look forward to your updates on buying the 'cheap' stocks. 'Cheap' as nobody knows!

    Thanks!

    ReplyDelete
    Replies
    1. Hi Blanc Fable

      I think for as long as the company fundamentals is sound, it'll sooth the emotions part a little bit.

      Delete
  3. Hi,

    i have been "always" buying too early and same to selling too.

    As long as you think there is a safety margin (for you only) buy lol.

    As long as you think the profit margin is enough (for you only) sell lol

    "Buy Low, Sell High" is easy only in thinking.

    So is "NATO" is easy.

    Me?

    i am 4Ks also.

    Margin is still not attractive for me since 2012.

    Except applied for some IPOs.

    ReplyDelete
    Replies
    1. Hi Uncle Temperament

      Indeed. Buy low sell high is easy in theory but hardly anyone can prove it in concept.

      Everyone thinks they are smart when transacting, and one or more has to be wrong on that same transaction.

      Delete

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