United Hamsphire US Reit (UH Reit)
I started buying last year and added more recently.
My thinking is UH Reit holds mostly properties anchored by neccessities/supermarket. These tenants have long lease duration. Hence, its rental income is stable.
The downside is rising US interest rates. And the annual rental increase is likely small.
Its 2023 DPU should be lower, due to rising interest rate. This is likely priced in its current price. If interest rate continues to rise, its DPU will continue to fall. If Fed cut interest rate, its DPU should rise.
Keppel Pacific Oak US Reit (KORE)
It's an US office reit. As many know, US office reits are in trouble due to falling physical occupany, falling demand, higher interest rates and tighter lending requirements for CRE (Commercial Real Estate). People expects more trouble for office landlords down the road i.e. slow moving train wreck.
The upside is that the above issues are likely priced in at its current price. If things are not going to get worse than expected, the current price is pretty ok to me.
The downside is that things can get worse than expected.
I will keep my position at KORE small, so that if prices fall further without permanant issues, I can add more. If there are permanent issues with KORE later, the losses will be kept small due to small position size.
So far, KORE office properties have held up better compared to MUST and Prime US Reit.
Cromwell European Reit
Have not bought into it.
Similar to US reits, it is facing rising interest rates. Unlike US Fed whose rate tightening is likely ending, the ECB interest rate is expected to keep rising given high Euro inflation and its interest rate is not as restrictive as US's.
We see how rising interest rates affect US reits last year. I expect that rising Euro interest rates will affect Cromwell similarly.
Cromwell should be interesting to look at, when ECB rate tightening cycle is ending.
I am thinking that the next decade may be the emerging markets's. That is, emerging markets (EM) is likely to have higher returns than the developed markets (DM), as the pendulum favors EM again.
The above shows the performance of MSCI EM vs MSCI World. The 10-year annualised returns for EM is abysmal 2%, compared to MSCI World's 8.9%. Looking at longer term from end Dec 2000 till end Mar 2023, EM annualised return is 7.6% vs DM's return of 5.7%.
As markets move in cycles, EM is likely be due for some outperformance in next decade. (Of course, I may be wrong.)
In last post, I mention EMVL (iShares Edge MSCI EM Value Factor UCITS ETF listed at LSE). It is based on MSCI Emerging Markets Select Value Factor Focus Index.
Recently, I am thinking about buying EMVL (iShares Edge MSCI EM Value Factor UCITS ETF listed at LSE).
The ETF tracks MSCI EM Select Value Factor Focus Index.
Reasons:
1) Regression to the mean.
As at Feb 2023, its 5-year and 10-year annualised return is -1% and +1%. Since Dec 29 2000, its annualised return is however 9.5%. I am guessing that emerging value will do better in next 10 years, given its abysmal return in last 10-years.
(On seperate note, I am guessing that the US market may provide lower returns in 2020s, compared to the emerging markets. Because US has stellar returns in 2010s.)
2) Its value multiples are interesting. Based on index factsheet, its dividend yield is 8%, forward P/E is 5.6 and P/BV is 0.7.
3) Surprisingly, TSMC and Tencent are in its top 10 holdings
Of note, extracted from the index factsheet:
The MSCI Emerging Markets Select Value Factor Focus Index is rebalanced on a semiannual basis, usually as of the close of the last business day of May and November, coinciding with the May and November SemiAnnual Index Reviews (SAIRs) of the MSCI Global Investable Market Indexes.
I will wait and see for now. Given the current interest rate environment (~4% in T-bills or IBKR account), the safest is still cash and there is some opportunity cost in deploying cash to buy shares.
Have sold 60% of my stake in Booking, as I find that the valuation is a bit expensive. After sale, Booking share price rose by 2+%. Perhaps it is not good idea to sell good companies. Well, we will know about this after a few years.
Have bought a small position in Semb Marine using CPF OA funds two weeks ago at $0.121. The current price is lower than purchase. I am looking to purchase more if price falls to $0.10. Reason for purchase is that Semb Marine's earnings should be much higher 5 years later given the upcycle/demand in wind structures, LNG carriers etc.
It may be good to buy stocks with a lot of pessimism, but the company will have higher earnings 5 years later.
I am feeling more pessimistic about US market:
1) US interest rate can go higher.
At best, it will remain high for quite some time to subdue the high inflation rate. Many commented that high inflation rate is persistent and need time to lower it to 2-3%.
The longer the high interest rate, the more it will feed into the economy and businesses. E.g. If Company A need to re-finance its loan in late 2024 and interest continue to be high in 2024, Company A may re-finance its loan at higher interest rate than before.
The longer the high interest rate, the more drag it has on US stock market
2) What is the likely time that US interest rates will be cut? During recession. When the economy is going into recession, earnings will decline. The declining earnings will affect US stock market S&P negatively.
Given the above, I should maintian my high cash position and deploy the cash into fixed deposit/t-bills for next few months.
When the market corrects later and people are feeling quite negative, it will be a good time to enter the market again.
Where is the investment clock/cycle now?
China/HK -- 7-8 o'clock
HK stocks have shot up since the low in end Oct/early Nov, after China ceased zero Covid and re-opened
US -- 4 o'clock
I am guessing that it is more likely for US stocks to fall further than to recover, given that earnings growth may be negative in 2023 and Fed may increase interest rate more than expected.
Nonetheless, there is slight chance that US stocks may recover this year.
Singapore -- 11 o'clock ?
I do not really know where Singapore market stands currently. Anyway, my allocation to Singapore stock market is not a lot.
SG Reits -- 3 o'clock ?
I feel that reits have more room to fall. Currently, the high interest environment has not been fully reflected in the reits earnings, as a large portion of their debt is fixed. When their debt is renewed in future, it will incur higher interest cost and hence lower dividends. The longer the high interest environment sustain, the worse it will be for reits.
Hence, I do not have much position in reits. Of course, I may be wrong. The above is just my guesswork.
