The Singapore stock market has been anticipating the Federal Reserve lowering interest rates for the past few months, and the Fed has delivered an oversized 50bps reduction, which stunned several market commentators.
This article explains how the Early Retirement Masterclass has positioned its 35th batch of students for the market recovery, which could potentially take the STI above its all-time high of 3,906.16 in October 2007.
Batch 35 of the Early Retirement Masterclass made the following stock picks on 18th September 2024, when it was not clear how much the Fed would act on high interest rates:
The Batch 35 portfolio is small at 12 stocks, but that was because the class size was small. Nevertheless, a focused 12-stock portfolio can be a powerful tool for riding the STI recovery and give a beginning investor a simple starting point in building a Singapore stock portfolio.
The portfolio was constructed using a series of stock screens, factor investing back-tests, analyst reports from brokerage houses, and ChatGPT AI-generated analyst reports for each stock. It would be too detailed to explain the process, but here’s a rundown of the main features of the portfolio:
For many retail investors, buying a bank when interest rates are expected to fall may be counterintuitive, as banks tend to underperform in a regime of falling interest rates. However, we have chosen DBS because it still projects a high return on equity of over 15% in 2025. Banks know that net interest margins will drop over the next few quarters, but they are trying hard to offset this with more wealth management fees. An attractive dividend of 54 cents a quarter incentivises investors to buy and hold this counter.
With all the attention on REITs, business trusts have languished over the two years but have bottomed out. The result is a less-than-popular asset class giving out juicy yields exceeding 9%, diversified over fibre optic cables, transport, energy/waste/water, broadband, and port operations. You will find that in our picks. There is a natural barbell for our balancing stable business trusts like Netlink Trust and Keppel Infrastructure Trusts with high-yielding and riskier Asia Pay TV and HPH Trust.
Although the business trusts may not generate much capital gains, we expect the yields to be high and stable over the next year.
The four REITs in this portfolio are expected to do better as interest rates fall further. Still, we have applied some caution with our picks, balancing out two of the STI REITs with the lowest volatility (Mapletree Industrial Trust with Frasers Centrepoint Trust) against high-yielding REITs with foreign properties United Hampshire REIT and Cromwell REIT.
As there are only 4 REIT picks, there is some room for a retail investor reading this to add more to this list.
Thai Beverage, Kimly, and YangZiJiang Shipping round out the rest of the picks. We are investing in beer, coffee shops, and ship-building.
All were picked for decent free cash flow and decent valuations.
The outcome is a balanced portfolio for a beginning investor looking to ride the rising tide in the Singapore stock market. It is designed to be forgiving, with a risk of 0.65 that of the rest of the markets. In a bad month out of 100 months, the portfolio is expected to lose slightly less than 10%.
As interest returns to Singapore equities, the portfolio is expected to have decent capital gains. Still, even if this thesis is not accurate, it has a projected yield of 7.28%.
A starting portfolio of about $16,500 would generate an average of $100 a month or a total of $1,200 a year.
You can sign up for a free preview tomorrow night to discuss how my students are taught to construct portfolios like this. Register now!
The information provided in this article is for educational purposes only and should not be considered investment or financial advice.