Portfolio & Dividends Update : 4th Qtr 2022

 Time flies and as the end of the year approaches, it's a good time to reflect on the goals and targets you set for yourself at the beginning of the year. Conducting a year-end review can help you assess your progress, identify areas for improvement, and set yourself up for success in the coming year. I think 2022 was a challenging year for everyone where we have seen the market swing like a pendulum. My portfolio returns fluctuate from having +ve 11% in early 2022 to -ve 10% in Oct and rebounded slightly to almost flat as of writing.

As we are approaching 2023, is time to “take stocks” on what’s happening to your portfolio and to review your investment strategy, assess your portfolio’s diversification and rebalance your portfolio if needed. Consider your risk tolerance: It's important to be aware of your own risk tolerance when reviewing your stock portfolio. If you're comfortable with a higher level of risk, you may be able to take on more aggressive investments. On the other hand, if you're more risk-averse, you may want to focus on more conservative investments, adjusting your portfolio to a point that you can “sleep well” at night.

Before I proceed with the portfolio review, allow me to share this beautiful photo taken on the train a few weeks back while on my way back to Singapore from my hometown.

I enjoy taking a train journey as it offers a unique experience that can be both relaxing and exciting. This beautiful sunset photo was taken by chance “unexpectedly”. (Is like our investment, sometimes we will have surprises in receiving “special dividend “or “dividend in specie” from companies that perform well in a particular year.)

Another aspect of train travel is the sense of community. Inside the cabin, we have a chance to see people from different backgrounds and cultures interacting and talking about their daily routines. (Like investing, we will see different kinds of investors, some like to speculate and be a trader and some look for the long term, some like passive and some like active, some invest in growth stocks, and some prefer value stocks.)

From time to time, the train will stop by at some small town/stations along the journey, and you can observe people boarding or alighting from the train, carrying their big and small luggage. (Like investing, you will see people entering or leaving the market, taking profit or cutting loss. No right or wrong as the below quotes:

“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” By William Feather

 

As the train continues to move along the journey, the atmosphere inside the cabin can be quite peaceful and sometimes also full of noise when there is a big family member interacting, youngsters singing and laughing, babies crying while mummy trying to pacify and calm them. (Like investing, the stock market is sometimes quiet and peaceful, moving sideways and sometimes full of noise, during a crisis or wartime like in 2022, some choose to alight (because of fear and some choose to board by thinking that could be an opportunity.)

Of course, one of the major benefits of taking a train is convenience. There is no need to worry about traffic, parking, or the hassle of navigating unfamiliar roads. Instead, you can sit back and let the train do its work, giving you time to relax, unwind and enjoy the changing scenery. (Like investing, buying and selling stocks is so easy and convenient with some brokers offering very low or nil brokerage commissions. It depends on the individual whether you want to be a trader or sit back, relax and stay the course.)

Overall, taking a train could be a truly enjoyable experience. From the beautiful scenery to the sense of community on board, always, there’s something special about traveling by train.

(Like investing, it is a long journey with sweet and bad experiences, of course with some ups and downs in the market. We will be distracted by “noises” from time to time and feel disappointed, investors will need to differentiate between a real fundamental change in a company (due to long-term structure or technology development) or just a “noise” from the market where the downtrend is just temporary and could be an opportunity to accumulate or buy more.)

 

Next stop ….Singapore.

 

As the train approaches the final destination, all passengers are reminded to gather their belongings and prepare to alight from the train. We hope you have enjoyed your journey and we look forward to welcoming you on board again in the future.  😊

 

 

4^th Qtr: Portfolio and Dividend Update

 

As mentioned earlier, the past year has been a challenging one for the stock market, with FED rising interest rates at the steepest and most aggressive pace not seen for a long time to combat the high inflation faced by the global economy and other global events like Ukraine War, supply chain disruptions, tech war between US and China, all these events causing significant disruptions and uncertainty to the market.

Market sentiment also dampens by high energy costs, retrenchment in tech sectors resulting in slower demand from US and Europe together with the Zero-Covid policy in China (till the recent change in policy), all these affect the market sentiment and earning prospects which resulted in a lackluster stock market returns in 2022.

With such a challenging environment, it would be great if our portfolio could outperform the market. In rising interest rates, tech sectors will suffer the most in view of rising costs and weaker demand, as such, we see Nasdaq was down by -29% YTD and even S&P500 was down by -20% YTD.

In addition, higher interest rates can make it more attractive for investors to put their money into assets such as bonds, which can offer a steadier stream of income. This can lead to a decline in demand for tech stocks, as investors seek out more stable investments.

My portfolio was also affected by the HK market where Hang Seng Index was down by -18.4% YTD but I am a bit lucky that Oil&Gas /Commodity sector in my portfolio is performing well and it helps to cushion off some of my losses.

 

My Portfolio XIRR :

YTD: -0.63% ( TTL Includes-Dividends)

All Time: 14.1% ( TTL Returns Includes-Dividends)

 

TTL Dividends & Interest Income in 4th Qtr 2022:   $27,731.00

TTL Dividends & Interest Income in 2022:  $189,258.05

                                            4th Qtr Dividend breakdown by market:

My portfolio underperformed STI by -4.51% and -7.88% (if we take into consideration of 3.37% of Div Yield for STI). STI is one of the best performing indexes in 2022 as Banks were doing well together with conglomerates like Jardine’s Group of companies, Keppel Corp, and SembCorp Ind.

 

TTL dividend/Interest collected increased by +16.4% in 2022 vs 2021 while we see two years decreased in 2020/2021 due to Covid-19 Pandemic. The increase in dividends is also partly due to better / special dividends from Oil&Gas / Commodity sectors which outperformed the market in 2022. Companies like Banks have also restored the dividend pay-out to the pre-Covid level and some of the REITs have also increased their DPU.

To have the same increase of % in total dividend in 2023 will be challenging without a special dividend from BHP and CNOOC unless all other stocks could increase the payout in 2023. 😊 Let’s see and hope for the best!!

 

The Straits Times Index (STI) on Track to Rank As Most Defensive Global Benchmark in 2022 <source:sg.investors.io>

·        As 2023 fast approaches, 2022 year-to-date has seen the STI outperform all global stock benchmarks on a dividend-inclusive total return, US$ basis. The STI’s 7% US$ total return for 2022 through to 16 Dec, compared to 18% and 17% declines in US$ total return for the FTSE Developed Index and FTSE Emerging Index.

** As highlighted, the 3 Big Banks and Conglomerates contribute greatly to STI’s good performance in 2022. Although STI is still slightly below its long-term trend line, I think is not that cheap ( especially for Bank stocks) as compared to during the Covid pandemic crisis. For investors still in the wealth accumulative stage, I think is still Ok to continue picking up some as the earnings will still be strong in this rising interest rate environment.

** FTSE ST REIT is down by -16.8% YTD due to the sector’s sensitivity toward rising interest rates.

One way that rising interest rates can impact REITs is by making it more expensive for them to borrow money and REITs often rely on borrowing to fund the new project and acquisitions, hence the higher borrowing cost can impact their profitability and DPU.

But I still believe that in the long run, REITs could be a good asset class to hedge against inflation. REITs with strong sponsors and lower gearing should fare better and those with better supply/demand in favor of bargaining power for future rental renewal would be able to mitigate some of the impacts of rising rates.

Hong Kong shares hit the lowest level since 2009 <source:www.bbc.com>

 

For those invested in the HKG market, 2022 is a bad and unforgettable year, with the index falling to 2009 levels. The benchmark Hang Seng Index closed on Friday (28th Oct 2022) at 14,863, after falling 3.7%. It was the first time the index had broken below 15,000 since April 2009 and the index was down by -51% from the previous high achieved in March 2021.

There are several factors that have contributed to the poor performance of the HSI since 2009. As I mentioned before, the Zero-Covid policy is the most important factor as it stops all mobility, and dampens all the measures to stimulate the economy. Rising interest rates, increasing geopolitical tension between the US and China together with negative sentiment on leadership changes on the re-election of Xi Jinping in his 3rd term as President.

The last two years were a really tough year for those invested in the HKG market as the market never recovered from the Covid-19 Pandemic low as compared to others. Due to the above events, the market continues its free fall and just rebounded slightly this month after China re-adjusting to some of its Zero-Covid policies with the market hoping for a recovery after the re-opening of its economy. Such a prolonged downturn is really “exceptional and unexpected” which caught many investors completely off-guard.

I think some investors have already “jump ship” and left the market, especially those heavy in the tech sector. I know this pain and even for me, after collecting more than $205K of dividends (since 2019), I am still in RED of more than -$84K, this shows how bad the market was till now. Of course, not all stocks invested in RED, the negative are mostly from the Tech sector like Tencents/Alibaba/JD.com / Baidu as this is the one badly hit by the “anti-monopolistic” crackdown since 2020. Some of my stocks are still in +ve like BOC HKG (+$28K), Oriental Watch (+$23K), CNOOC (+$10K), CK Asset (+$8K), etc.

As you can see from the above chart on dividends detail by Markets, other than Tech stocks, the HKG market contributed a good portion of my yearly dividend (around 45%) in 2022. I will just sit tight and collect the dividends while waiting for the market to recover. I don’t have a crystal ball to tell when the market will recover and I know investors had been waiting for so long for the HKG market to recover, but as a long-term investor, I can wait for another 3 years if not 5 years.

 

As Warren Buffett put it: “The stock market is a device which transfers money from the impatient to the patient.”

“People always want investments to go up like a line.… That’s just not reality. You make 80% of your money 20% of the time in investing and you have to be patient.” Jeffery Gundlach.

“Throughout all my years of investing I've found that the big money was never made in the buying or the selling. The big money was made in the waiting.” Jessie Livermore.

Remember this chart I presented in my previous blog post, in the short-term, your portfolio value fluctuates according to Mr. Market’s sentiment, but you continue to collect the dividend while waiting for recovery. So long as the companies you invested in are sound and strong fundamentally, they will recover eventually once the mood of Mr. Market changes. We need to understand that the market always moves in a cycle, the same as our stock performance, we can’t beat the market every year, sometimes we win, and sometimes lose.

 

Portfolio Diversification Is the Key

Diversification is an important aspect of portfolio construction, as it helps to reduce risk and increase the chances of achieving long-term investment goals. By diversifying a portfolio, investors can reduce their exposure to any one particular asset class or sector, which can help to minimize the impact of any potential losses.

As you may notice that this year, the tech and REITs sectors perform poorly in my portfolio but overall, it helps by the strong performance from Oil&Gas/Commodities / Banks and Conglomerates.

By having a diversified portfolio, investors can reduce their exposure to any one particular asset or sector. This can help to minimize the impact of any potential losses and provide a measure of protection against market downturns.

You may see from the table below that some of the stocks in my portfolio (from different sectors) are performing well and this mitigates the risk of having just one concentrated sector in your portfolio.

 

 

Overall, diversification is an important aspect of portfolio construction and can help investors to achieve long-term investment goals while minimizing risk. It is important for investors to carefully consider their risk tolerance and investment goals when constructing a portfolio and to diversify their investments in order to mitigate risk.

Top 40 Holdings :

41-78 Holdings :

Since the last update, I added more Tracker Fund 2800 / CNOOC / Ping An / CLCT and trimmed and reduced my SG bank slightly. Reducing SG banks is not because of fundament at all, and I think SG bank will continue to perform well in 2023 with chances of increasing dividend pay-out due to better earnings. You can see that I still have more than 20% in the Financial Sector, and I just wanted to increase my cash/war chest a little bit as I feel 2023 will continue to be a volatile year for the stock market. High energy costs and possible wage increase inflation may force FED to maintain the FFR at a higher level and a much longer period, this will affect the earning prospect in 2023.

Overall, I am still 80+% in equity and stay the course.

 

If you remember I mentioned 4D in my last update, De-globalization, De-leverage, De-coupling, and De-dollarization. The geopolitical tension between US/Europe and Russia/ China will continue and get serious in 2023, the fight from energy to trade and the latest chip war and ongoing competition between major tech companies to develop and produce advanced microchips, which are key components in a wide range of electronic devices. The chip war has intensified in recent years, with companies investing heavily in research and development in an effort to gain a competitive edge.

The US government has initiated the so-called “Chip 4 Alliance”, a group of four major tech companies (Intel, Samsung, TSMC, and SK Hynix) that have come together to counter China's semiconductor development. The alliance aims to collaborate on the development and production of advanced microchips, which are a key component in a wide range of electronic devices.

One major factor driving the formation of the Chip 4 Alliance is the increasing competition between the tech industry and China in the semiconductor market. China has made significant investments in its semiconductor industry in recent years and has become a major player in the market. This has led to concerns among some tech companies that China could gain a dominant position in the industry and potentially disrupt the global supply chain.

In short, the Chip 4 Alliance hopes to counter China's efforts and maintain a leading position in the global semiconductor market, this may lead to more protectionism and trade disputes among countries which may have huge implications and risks for that industry in particular, and global trade flow in general.

 

TSMC founder Morris Chang says globalization 'almost dead'<source:asia.nikkei.com>

"Twenty-seven years have passed and [the semiconductor industry] witnessed a big change in the world, a big geopolitical situation change in the world," Chang said. "Globalization is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don't think they will be back."

  

The year ahead may be a challenging one for the stock market, with several factors contributing to uncertainty and volatility. One major factor to consider is the ongoing economic impact of the inflation and high-interest rate environment. High interest will have a significant impact on the global economy, leading to widespread job losses and a slowdown in business activity and companies’ earnings prospects.

In addition, there are a number of other global and geopolitical factors that could impact the stock market in 2023. These include trade tensions, political instability, and other events that could disrupt the global economy and lead to market volatility

Furthermore, it is important to consider that the stock market is inherently volatile and that there are always risks and uncertainties to consider when investing. It is important for investors to carefully assess their risk tolerance and diversify their portfolios in order to mitigate risk.

 

Other than higher interest rates and inflation, another challenge (which I think is more important) will be the QT or when FED tries to shrink its balance sheet more aggressively.

Although we can see from the below chart that FED had reduced the asset (bond) by almost $380 Billion, it is still way much higher than the pre-covid-19 level where the FED balance sheet ballooned to almost $8.9 Trillion (an increase of almost $4.8 Trillions), hence, a reduction of $380 Billion is not a substantial and long way to go.

The FED's QT could lead to a tightening of financial conditions, as the reduction in the money supply may lead to a tightening of credit availability and higher borrowing costs. This could make it harder for businesses to access the capital they need to invest and grow.

In view of the increase in the FED RRP (reverse repo) rate, the excess liquidity from the money market/ credit from selling equity & speculative asset has been funneled back to RRP facilities. Such a huge temporary money/ credit flow will make the stock market more volatile where liquidity is not permanently mopped out from the system.

 

The Fed's reverse repo use just hit a fresh record of $2.4 trillion — why that's one of the clearest 'bad signs' for the market. <source:yahoo.finance.com>

  

Another worry will be the US Bond market which is much bigger than the stock market in terms of notional value.

 

Treasury’s Yellen worried about ‘loss of adequate liquidity in U.S. government bond market..<source:marketwatch.com>

 

 “The Fed’s move to unwind its balance sheet, a process known as “quantitative tightening,” has heightened liquidity concerns, analysts said, removing the central bank as a key buyer of government debt.”

“Meanwhile, foreign investors — led by Japan and China — have been consistently reducing their U.S. government-bond holdings since 2014, noted analysts at Morgan Stanley in a recent note.”

UPDATE Foreign holdings of Treasuries drop to lowest since May 2021 - <source:reuter.com>

 The bond market is starting to worry Wall Street <source:edition.cnn.com>

 

 

Overall, while there may be challenges ahead in the stock market in 2023, it is important to remember that the market has demonstrated resilience in the face of past challenges and that there are always opportunities for long-term growth. Having a diversified portfolio and fundamentally strong companies will still perform well in the long run.

 

Hope 2023 will be a better year for all of us and wish you all lots of joy, happiness, and good health !! Merry Christmas and a Happy ( HUAT)  New Year 2023!!! 

 

Cheers !!

 

STE

 

 

PS: Sharing some photos taken during our recent trip onboard RCL Cruise “Spectrum Of The Sea” 😊