Portfolio @ April 2018

April

April PortfolioApril Portfolio Value

Performance Indicators / Dividends

  • YTD Time weighted return: 0.66%
  • Dividends collected: $388.69
  • Upcoming Dividend Receipts:
    • Frasers Commercial Trust: SGD 92.80
    • Capitaland Mall Trust: SGD 105.64
    • Starhill Global REIT: SGD 109
    • Keppel Corp: SGD 182
    • Raytheon Co.: USD 15.19
    • Activision Blizzard: USD 14.28

Commentary

After suffering a pretty horrendous March, the chase is on to recover all those paper losses. In that sense, it was a decent month with month-on-month gains of about $3k driven largely by gains in Amazon and Spotify, offset by losses in my defence stocks Lockheed Martin and Raytheon on strange earnings guidance, Macron’s efforts to retain the Iran Nuclear deal and yesterday’s North Korean denuclearisation declaration. To say I’ve been very lucky with geopolitical and random news these months has to be an understatement 🤣 All I can say is that fundamentals are strong and I’ll stay the course.

Portfolio changes made this month has been more for diversification purposes given the volatile environment. They are as follows:

  1. Divested some Keppel Corp and rotated the cash into Capitaland Mall Trust to keep for the long term.
  2. Partial divestment of Amazon and full divestment of Facebook into Spotify and Visa respectively.

I’ve mentioned previously that I would buy into Spotify at the right price and I was presented with an opportunity early in April and it has been a decent performer since my purchase. As for Visa, I’ve always wanted to be involved in the payments space and went for a household name to limit the volatility in my portfolio, compared to if I had gone for sexy names like Square or Paypal. As for CMT, it was trading at a decent price. Although it was not the best yield of 5+%, with future growth opportunities in the Funan redevelopment, organic dpu growth and capacity for acquisitions, I’ll hold this for at least the next 2 years.

Earnings season has started in April and companies have been reporting great earnings so far. Only the counters with known flaws (FCOT and Starhill) were slightly disappointing to me. Will continue to observe these 2 REITs and rotate into better quality REITs if the market presents a chance.

For now, I’m just going to save and build my warchest in preparation for more volatility.

Happy Hunting,
KK

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Portfolio @ March 2018

March.jpg

March Portfolio

Performance Indicators / Dividends

  • YTD Time weighted Return: -2.26%
  • Dividends collected: $244.20
  • Upcoming Dividend Receipts:
    • Bank of America: USD16.80
    • Activision Blizzard: USD14.28
    • Keppel Corporation: $322

Commentary

March has been another volatile month in the markets. With trade war fears, Facebook’s woes and Trump’s war on Amazon, it was a pretty bad month for me. All in all, I’ve round tripped my 2018 gains and then some. That said I’m looking to build more income into my portfolio using my newfound knowledge from the Dividend Machines course, so I’m continuing to save and build up my cash reserves.

Transactions-wise, other than those previously disclosed, I’ve sold ATVI as it was not acting well and I wanted to move away from high multiple tech stocks. If the chip stocks continue to tank, I’ll be interested in shifting my money over from FANG stocks. I have my eye on Intel and Micron at the moment, just waiting to pull the trigger.

Here’s to a better April 🙂

Happy Hunting,
KK

Recent moves: Amazon.com, Starhill Global REIT

Recently, I made some adjustments to my portfolio – I swapped out part of my Google position into Amazon.com; and bought into Starhill Global REIT. Am I breaking up with Google? Isn’t Amazon.com’s valuation insane? Isn’t Starhill Global REIT’s DPU falling?  Here are my thoughts.

Amazon.com

Amazon (NASDAQ: AMZN) has been one of those stocks that I’ve been eyeing forever but due to traditional valuation metrics I’ve put to one side for a long time. It all started when I was contemplating buying either Amazon or Google (now Alphabet (NASDAQ: GOOGL). I ultimately chose Google over Amazon purely due to valuation.

he-chose-poorly.jpg

AMZN proceeded to provide a more than 150% return since then. Admittedly, Google provided a not too shabby 50% return since, but you can see the relative under-performance. I’ve come to realise that Amazon cannot be owned based on valuation. They are seeking to dominate the world, so they need to spend and spend in order to get there first. Sure, they can rest on their laurels and immediately turn a profit by cutting spending. But that is not Jeff Bezos’s goal. What’s more he is executing on his strategy like clockwork – no. 1 e-commerce platform in the US, best Voice Assistant in Alexa, most widely used cloud platform in Amazon Web Services (AWS), the list goes on.

As such, to invest in AMZN was not because the stock provides value, but in your belief that Jeff Bezos is the Messiah that will bring you to the promised land of ecommerce, cloud services and AI, among the insane number of initiatives and moonshots going on at that company.

After yet another blowout earnings report by AMZN and another good but not great quarter by Alphabet, I decided to take the leap from GOOGL to AMZN on weakness. Which I promptly did last week thanks to Trump’s tariffs and Gary Cohn’s departure. I still retain 5 shares of Google purely for “diversification purposes”.

Will I crash and burn at the altar of overvaluation? Only time will tell so watch this space.

Starhill Global REIT

My continuing effort to build yield into my portfolio probably reached its end (for now) when I purchased Starhill Global REIT recently. This is a name that I don’t think people outside the investing community would know about so here’s a brief introduction.

Portfolio of Properties

Portfolio Overview

Source: Starhill Global REIT

The Singapore, Australia and Malaysia properties account for 62.5%, 22.1% and 13.2% of revenues respectively. This means that the fortunes of Ngee Ann City and Wisma Atria greatly determines the DPU of the REIT. Do note that they do not own the entire Ngee Ann City and Wisma Atria. Judging by the strata title plans, they own the whole of Wisma Atria excluding Isetan. As for Ngee Ann City, they own Office Tower B and the retail shops excluding Takashimaya department store.

Key Metrics

  1. Occupancy for SG retail and office space: 98.6% and 89.4% respectively
  2. Weighted Average Lease Expiry (WALE): 6.4 and 4.8 years (by Net Lease-able Area (NLA) and Gross Rent respectively)
  3. Price to Net Asset Value (NAV): 0.78
  4. Gearing: 35.3%
  5. Weighted average debt maturity: 4.0 years

The above set of metrics seems rather attractive to me because:

  1. Relatively high and stable occupancy for SG retail, however a lower occupancy for SG office space due to oversupply in office segment. With the anticipated recovery in office rents, the impact of lower occupancy might be offset partially.
  2. WALE being 4.8 years by Gross Rent means great DPU visibility over the next 5 years.
  3. The REIT is trading at 22% discount to NAV, which can be a buffer to further downside in the REIT price
  4. Gearing of 35.3% gives the REIT some room to lever up for acquisitions, if any, to increase future DPU (REITs are prevented from gearing up beyond 45% by MAS)
  5. Weighted average debt maturity of 4.0 years means the REIT doesn’t have a large amount of immediate debt obligations to service. With that said, the REIT has maturities in FY 2021 – FY2023 for a significant portion of the debt (approx 50-60% of the current debt). I guess they’ll figure it out then.

My Hypothesis

The main reason why DPU has been falling over the past year is a combination of factors:

  1. Lower office occupancy
  2. Lower Orchard Road traffic
  3. Threat of E-commerce
  4. Ongoing Asset Enhancement Initiatives (AEIs) and renovations
  5. Weakening of AUD and MYR

For point 1, as noted in the latest Q2 earning results, office occupancy is expected to recover in Q3 as committed occupancy only commences then. As such, Q2 drop in DPU is likely to be an anomaly.

For point 2 and 3, unfortunately there is little they can do beyond moving towards a more experiential mall concept rather than traditional retail concepts. The upside is that with Singapore tourist arrivals continuing to boom, Orchard Road traffic might recover as a result.

For point 4, AEIs are great for REITs as they usually result in increases in NLA and thus more revenue when the area is rented out. However, while the AEI is ongoing, that portion of the property has to be shut down, resulting in a short term decrease in DPU. The Wisma Atria food court only opened for business after renovation in November 2017. With a full quarter of operation, it should contribute more to DPU in Q3. Also, there are ongoing AEIs at Plaza Arcade (Australia) and Lot 10 (Malaysia) set to complete in Q3 and open in Q4, which is definitely accretive to DPU.

For point 5, the Manager has partially hedged their Forex exposure but this will continue to be either a headwind or tailwind.

Going forward, given the above discussion, I feel that there is potential for DPU recovery at least in the 2nd half of 2018. Further potential catalysts of increasing Singapore Office occupancy and average gross rents will further drive DPU growth. The market has already punished it for its relative under-performance to the big boys like Mapletree Commercial Trust, Frasers Centrepoint Trust and Capitamall Trust. Given that it is yielding a relatively attractive 6.8% yield and trading at a multiyear low, it is worth a punt despite the potential headwinds.

Conclusion

With the latest changes I made to the portfolio, I have a 3+% projected yield from my entire portfolio based on StocksCafe projections. I’ve also roughly split my portfolio into 50:50 SG and US stocks, with my SG portfolio focused on undervalued yielding stocks and REITs, while my US portfolio is focused on growth. Looking at it, I’m very happy with where my portfolio is at the moment and don’t expect to adjust it by much for the rest of the year (unless something drastic happens).

Happy Hunting,
KK

Disclaimer: The information I present are for general information only and does not constitute a call to buy or sell any shares. Individuals should consider the suitability of the information presented in this blog to their own specific situation before acting. Invest carefully my friends.

Portfolio @ February 2018

February

 

It’s the end of a topsy turvy month so it’s time to take stock!

Portfolio 1Portfolio 2Portfolio 3

Performance Indicators / Dividends

  • YTD Time weighted Return: 3.03%
  • Dividends collected: $244.20
  • Upcoming Dividend Receipts:
    • Keppel Corporation: $322

Commentary

Market volatility brought about a correction in early February, prompting me to put more capital to work this month as seen in the graph. This is offset by the decrease in unrealised gains for the year as a result of the correction.

It’s been a month of significant transactions. Other than those previously disclosed, I built a stake in Frasers Commercial Trust as a contrarian investment. As the HP Inc overhang over the REIT is gradually lifted, with a potential catalyst of the office space rental recovery going into 2019, it looks like a decent speculation. It pays a decent yield as well at the moment, fitting into my shift towards an income strategy.

Here’s to a better March! Huat ah!

Happy Hunting
KK

Everyone picnic!

Let me dust off a Hearthstone related meme.

The end is coming.jpg

Everyone panic! Run for cover! Sell everything! The markets are collapsing!

World Indices 06022018

Sia la everywhere 满江红 on Monday

Over the 4 years that I’ve been in the market, there have been periods where everything seems so dark and the markets so bloody. I had the whole “catching the falling knife” situation with Keppel Corp thing, the periodic doomsayer of Apple, government shutdowns, debt ceiling battles, Greece defaulting, Brexit fears.

What I learnt from all these now familiar and frankly welcome kicks up the bum is this:

  1. Nobody ever made money panicking
  2. There is always a better time to sell. Never cash out in the depths of the selling
  3. Most importantly, this too shall pass.

Take a breath, assess your portfolio and your shopping list of stocks, and decide if you need to change anything. If you had chosen your stocks well, you shouldn’t need to make much adjustments. Once done, you pretty much can just shut down the computer and go to sleep. Keep track of the price movements, but largely ignore them. This is why we invest in quality companies, so that we can switch off and go on a extended holiday without feeling a need to do anything about the portfolio.

So what did I do?

Honestly I’ve been too unfocused and sanguine recently. I reassessed my portfolio, sold my non-core stocks and rotated some of the proceeds into stocks that are now relative bargains, namely:

  1. Sold Apple. It is a relatively small position, so I wanted to concentrate more in certain stocks. This is not to say it is a bad apple 😛
  2. Sold Domino’s Pizza. The impending exit of CEO Patrick Doyle coupled with it being a relatively small position pushed me to bid farewell to this great stock.
  3. Sold Frasers Property Ltd. Property stocks likely to be under pressure with rising interest rates. I’m now neutral on the property sector due to gains in the past year.
  4. Sold Keppel REIT. Management guided that DPU likely to fall this year, with a possible recovery in 2019. I decided not to stick around in the meantime. Plus, property related stuff likely to be under pressure.
  5. Sold Tencent. It came too far, too fast, so locking in profits while I can. Will relook to buy back if it goes below HKD 400 or when it bottoms out.
  6. Sold Valeant Pharmaceuticals. It has become a battleground stock (ie the bulls and bears are at war with each other) so I expect it to stagnate here for a while.
  7. Bought Raytheon. Patriot missiles, yea! Plays into the macroeconomic theme of the US pivoting away from their Global Policeman role, leading to increased global spending on defence from US allies. Plus they reported a great quarter a few weeks back, so you’re getting the quarter for free based on current prices. Also, I didn’t want to add to Lockheed Martin for diversification purposes.
  8. Bought SingTel. Like a significant amount of SingTel. 5% yield, strong balance sheet, what’s not to love? Plays into my desire for more yield going forward as well. Limited growth potential as it is essentially a utility, but the stable yield and overblown (in my opinion) recent sell off since paying out their dividend makes it attractive to me.

Wow thats a lot of transactions in the 1+ weeks since my monthly portfolio, considering I only did about 3-4 transactions last year.

Summary

Fear spreads in times of market freefall. Keep calm and carry on. I say Don’t Panic, Picnic (Bad pun I know). In the spirit of picnicking, let’s relax and imagine ourselves at a awesome picnic. 😛

Picnic

Happy Hunting,
KK

Portfolio @ January 2018

Portfolio

It’s a wrap on the last full week of trading in January so its time for another monthly review.

Portfolio Jan 2018 2Portfolio Jan 2018 1Portfolio chart Jan 2018

Performance Indicators / Dividends

  • YTD Absolute Return: 5.84%
  • YTD Gains: SGD 6,860.53
  • Dividends collected: Nil
  • Upcoming Dividend Receipts:
    • Keppel REIT: $57.20
    • Frasers Centrepoint Ltd: $186
    • Keppel Corporation: $392

Commentary

January has been overall a wild and crazy month. Performance was largely driven by the following factors:

  1. Positive
    1. Keppel Corporation – On re-rating of the stock by analysts, consolidation rumours with SembCorp Marine and increasing oil prices.
    2. Google – On tax reform and wider market forces
    3. Tencent – On China growth speculation
  2. Negative
    1. Valeant Pharmaceuticals – On a scathing downgrade by Goldman Sachs
    2. Strengthening SGD against USD and HKD led to unrealised forex losses
    3. Apple – On Iphone X upgrade cycle worries

To be honest, I couldn’t be happier with the way January went. The moves in Keppel and Tencent in particular has been nothing short of spectacular. Of course, if I had sold my Valeant earlier before the downgrade my YTD return would have been higher, but hey, 5.84% in 1 month is pretty awesome.

Looking forward, I expect positive momentum to continue into February. As most of my tech stocks are reporting quarterly earnings in the next 2 weeks, I will need to be extra vigilant on any wrinkles in the quarter. At the same time, I’ll look into raising some cash from my non core holdings into strength if possible as well as build my warchest by saving my salary.

How did your January go? Are you happy with it?

Happy Hunting,
KK

Recent moves: Activision Blizzard

I shall begin this post with a…

Nerd AlertI mean, how often do you get to nerd out about your interests and talk investing at the same time? I’m already excited at the prospect of writing this post that I’m probably going to write something gibberish andhardtounderstandlikethewayimtypingrightnow. 😛

With that warning out of the way, let’s talk Activision Blizzard (NASDAQ: ATVI).

Activision Blizzard

To the uninitiated, ATVI is home to some of the oldest video game developers in the world. If you grew up in the 80s – 90s and are into games, you would have played their some of their classics. I recall playing Mechwarrior 2 (Activision) with my brother on my classic Pentium 1 PC. Towards the end of the 90s and early 2000s, I played the Starcraft and Warcraft 3 (Blizzard Entertainment) campaign over and over as it was that good. And of course, who can forget banging their heads against their Iphones trying to beat level 377 in Candy Crush Saga (King) in recent years.

In essence, I’ve named the 3 legs that the ATVI stool stands on:

 

Key Divisions

1) Activision

Activision was founded in 1979 by developers who left Atari, one of the first home game consoles created. Since then, they have published many titles and undergone many acquisitions and restructuring exercises. Now, they are predominantly known for their Call of Duty and Destiny franchises, both popular competitive first person shooters on PC and consoles.

2) Blizzard Entertainment

Of the 3 legs, Blizzard Entertainment is the one closest to my heart. At almost every stage of my life, I’ve played and loved a Blizzard game. It started with StarCraft in the late 90s, WarCraft 3 in early 2000s, a bit of World of WarCraft during late 2000s, StarCraft 2 in early 2010s and finally now Hearthstone on my Iphone.

Blizzard is, in my opinion, the ‘Walt Disney of Video Games’. They combine excellent storytelling with beautifully rendered visual cutscenes and gameplay to create game worlds that are intriguing and engrossing. This is very much evident in the StarCraft and WarCraft franchises. Their recent exploits are games geared towards competitive gaming in Heroes of the Storm and Overwatch, and casual gaming in Hearthstone. These are areas that have high potential and profitability going forward, as explained later.

3) King

Candy Crush Saga.png

King Digital should be no stranger to mobile gamers from their Candy Crush and Bubble Witch Saga games. They are a mobile gaming app developer that was acquired in 2016. I was surprised at this acquisition as although I had fun with Candy Crush Saga when it was initially released, I ultimately stopped playing as I felt that clearing a stage involved way too much luck compared to skill. The only benefit was probably getting instant exposure to the mobile market, which Activision Blizzard had little exposure to at the time.

The Bull Case

Here’s my potential catalysts for the company:

1) Esports

Esports (shortened from Electronic Sports) is an area that is rising in popularity among gamers and the wider public. Simply put it is the professionalisation of competitive gaming, where professional gamers and teams compete with each other for a championship, very much similar to traditional sports like soccer or basketball.

ATVI is a relative lightweight in the Esports arena when compared to the juggernauts in the space – Tencent (Through League of Legends) and Valve (Through Dota 2). With that said, it has been silently acquiring Esports assets like Major League Gaming (MLG). It also has ongoing Esports tournaments for Call of Duty and to a smaller extent, Hearthstone.

Overwatch LeagueIn fact, ATVI began a big experiment in Esports with the recent launch of the Overwatch League for their team based shooter Overwatch. The competition format follows the NBA in some ways, with a initial round robin league phase, with the top 6 teams out of 12 qualifying for the playoffs. The playoffs uses the knock-out format until you crown the ultimate champion.

As part of this experiment, Twitch TV, a live streaming platform dedicated to video gaming, paid $90M for the streaming rights for the 1st 2 seasons of the league. The stream is presented in sports TV-like coverage complete with commentators and analysis provided by MLG.

Viewership stabilised at 60-70k daily simultaneous viewers during Week 2 of the competition, dropping from over 100k viewers during Week 1 due to initial hype, which to me is a respectable number for now.

Time will tell if this great experiment will work, but I’m betting that it will turn out fine.

2) Leveraging existing Intellectual Property assets

The company is taking a page out of Walt Disney by capitalising on its extensive IP assets to license and develop consumer products by creating a consumer products division in 2017. The consumer products division has been busy signing licensing deals for products and any licensing revenue goes straight to the bottom line.

Candy Crush Icecream

Candy Crush Ice cream anyone?

3) Continued push into mobile

The acquisition of King was not simply to get a quick presence in mobile, it represents an opportunity for ATVI to utilise King’s mobile gaming expertise to push out mobile games using Activision and Blizzard’s the rich library of content. ATVI had already shown an aptitude at porting Hearthstone to mobile, that capability can only be augmented further by the acquisition of King.

There are currently no announced titles on this, but any game resulting from this partnership only adds to the potential upside.

But what about their competitors?

There are currently 2 listed video game publishers in the US – Electronic Arts (NASDAQ: EA) and Take-Two Interactive (NASDAQ: TTWO). However, due to the following reasons, I wasn’t very interested in them.

1) Company and Management culture

EA is the undisputed giant in the industry. That being said, I absolutely detest their management. EA’s management is responsible for single-handedly ruining games due to their constant desire to milk every single ounce of revenue out of their games. They have been increasingly testing the limits of gamer patience through practices like in-game purchases and micro-transactions in paid games, and extremely buggy game releases at launch. Discussion on this topic alone can take up an entire post, so I’ll just stop there. Just know that their obscene greed has affected the way they develop their games (the most high profile example being Star Wars Battlefront 2) and I foresee doom for the company if they continue on this path.

In contrast, ATVI’s management, Blizzard Entertainment in particular, remain gamers at heart and understand the issues facing the industry. They have shown comparative restraint and attention to detail in their development of games and has so far not released any game with anti-consumer features or a boat load of bugs at launch.

2) A very deep moat

One of the criteria Warren Buffett looks for in companies is a significant moat (ie competitive advantage) that stops others from easily encroaching on their space.

ATVI has, in my opinion, a very deep moat, due to years of quality game development and continued fan engagement. The best manifestation of this moat is BlizzCon, Blizzard’s annual convention.

BlizzCon

That’s a lot of cosplayers

This annual gathering is almost like a pilgrimage for Blizzard fans to gather and share their love for the games they play. Every franchise always get some sort of announcement at BlizzCon, so its one of key events in ATVI’s calendar.

When compared to EA or TTWO, their fans just doesn’t seem to display the same fervor.

3) I just don’t play their games

Although EA owns a lot of games that I used to play ages ago (FIFA, Command and Conquer, Dragon Age), their practices is currently a big turn off for me.

As for TTWO, I’ve never played Grand Theft Auto, Red Dead Redemption or 2K Sports games and I don’t foresee myself doing so. Also as a sidepoint, TTWO has doubled in the past year and are the most expensive of the 3 stocks.

My trigger point

ATVI 1 Year Chart

Courtesy: Yahoo! Finance

ATVI has spent 2H 2017 consolidating in a fixed range that only broke out after the New Year on the Overwatch League launch and broader market uptrend. I initiated a small position on the breakout on a bet it will move subsequently higher and settle in a new range.

The risk is that the company’s valuation is not very cheap on historical PE basis and any weakness in any of their endeavours might cause a re-rating downwards. If that happens, I’ll be glad to add to my position if possible.

Happy Hunting,
KK