Regression to Trend

April 07, 2021

Regression to Trend: Another Look at Long-Term Market Performance < source :https://www.advisorperspectives.com/>

"About the only certainty in the stock market is that, over the long haul, overperformance turns into underperformance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis (see footnote below) to the question.

Below is a chart of the S&P Composite stretching back to 1871 based on the real (inflation-adjusted) monthly average of daily closes. We're using a semi-log scale to equalize vertical distances for the same percentage change regardless of the index price range.

The regression trendline drawn through the data clarifies the secular pattern of variance from the trend — those multi-year periods when the market trades above and below trend. That regression slope, incidentally, represents an annualized growth rate of 1.88%."

Is the Stock Market Cheap? < source :https://www.advisorperspectives.com/>

Every dog has his day ! STI rebounded strongly in 1st Qtr 2021 and outperformed most of the regional index.

With sectors rotation from growth (TECH ) to value stocks, STI can finally and proudly rebut those calling it as "Sick" Times Index. But since this is just 1st Qtr of 2021 and hope the momentum would continue throughout the year.

For longer perspective, STI still moving below long term mean level and almost unchanged as of 11 years ago on 1 Apr 2011 at around 3172. If you are investing STI ETF for the past 11 years , your returns may be just the dividend yield of around 3+%, barely beat the inflation , may be.

Hopefully those cyclical and value stocks like Big 3 banks / Jardine C&C /HK Land / YZJ/ Wilmar/ Keppel Corp/SembCorp Ind etc will be able to help to lift the index to higher level in coming quarters , of course the companies will need to show better earning results with improving economic situation.

STI = +12.8% , HSI = +6.3%,NIKKEI225 = +8.9% , KOPSI = +10%, Taiwan Weighted Ind= +12.2% , FTSE KLSI= -2.6% , S&P500=+10% , NASDAQ = +7.9%

Overall FTSE ST REIT index is quite stable and moving along the mean level. I guess the hot topic for property and REIT last month was the privatization of property arm from Capital Land and separate it to a new entity to concentrate on asset management and holding of some REITs + hospitality asset.

Below is a more detail and better explanation on the whole restructuring process from FinancialHorse.com:

CapitaLand’s Restructuring / Privatization Explained – What is going on?

CapitaLand’s Restructuring – Is this bad for the CapitaLand / Ascendas REITs? (Part II)

I actually quite like the idea of CLIM which is similar to ARA Asset Management before it been privatized in 2017 where I made almost 30% overall including dividend in investing in ARA Asset Management. I guess the idea of separating the property development and asset management is what market ( or overall SG Inventors) wanted.

I think most of us ( SG investors) like to invest for income / dividend , the new CLIM will have assets like REITs which generate stable and recurring income and also a property management where the fees / income is more stable and predictable. Temasek just take out the property development units which the revenue/profit is more bumpy and given what the market wanted to have it i.e the CLIM type of biz model.

Although we know that the dividend yield for CLIM will be lower than REITs but as mentioned by the CFO, there will be "growth" factor in this company with some of the mature assets can be recycled into REITs and also hopefully the NAV for some of their PE fund will increase eventually.

Hence, I did some small adjustment to my portfolio in reducing % of my ARA LOGOS and split the fund into Capital Land & Ascendas Ind REIT. I have been eying and targeting REITs with DC biz for quite some times but since the valuation is high and I just wait for the opportunity to come. With recent pull backed on some of the DC biz REITs by almost -20% , I have decided to switch.

STE and Mrs. have already registered with MOH for our Covid-19 vaccination and I hope more and more peoples will get their vaccine soon when more vaccination centres to be opened by mid-April.