The SRS Fund Sep 2022 Update

Invest in Cash

Cash is often much under appreciated in the topic of investment.  However one should carefully consider cash as an integral part of your portfolio management.  

In my last books recommendation titled ‘The Joy of Compounding’ the author Gautam Baid wrote “Cash is like a call option on opportunity.  Having ample liquid cash puts a valuable optionality in the hands of investors, to make bargain purchases when opportunities arises.”

While many investors disdain cash due to its real negative return over the past 2 decades, I believe the time has come for this low interest rate cycle to reverse.  Interest rates will likely give a real return as it should have been over and above inflation rates.

As we shift from decades of low interest rates environment, many rules and common financial concept may have to be rewritten.  The bond market is left in a state of shock as many start to realise the super bull market in bond has ended. 

Countries with government running unsustainable monetary policies will quickly find themselves in a difficult place like what’s happening in the UK, leading to the Bank of England bailout.  

Pension funds and insurance companies have found out bond is not much of a safe haven instrument and counter parties risk is real even if the other side are government with the ability to make currency out of thin air. 

The cash investment fever is starting to heat up as we start to see banks offering high fixed deposits promotion to climbing treasury yields.  For those with ample cash it’s a good time to go shopping for the ever increasing deals around. 

For investors with equity with good business fundamentals, these companies will be able to deal with inflation and over time still come out on top.  

As we adjust to longer term normal interest rate of 4% – 6% surely pain will be felt in both the equity and bond market. Stock valuation will have to readjust with a higher discount rate assumption.  Bond are simply less attractive if cash gets a good return.

Personally I was lucky to have refinanced my home loan at an attractive rate for 2 years before this interest surge.  Together with the loan, I was also able to cash out some home equity thus leaving me with a healthy cash balance.

While waiting for the best opportunities to come I have figure out some ways to invest my current cash balances at the following 

UOB One account – Up to 3.6% interest good for $100k

Moomoo trading account – Over 2% with coupon yield boasting coupons of up to 20% for a couple of days

6-month T bills – Over 3% (Actual rate base on auction pricing)

The SRS Fund Review Sep 2022

For many September is the month to forget as the entire SG REIT market adjusted to the potential impact of higher long term interest rate. As the returns from cash increases, the return expectation from REITs also increases in tandem.

What transpire is an adjustment to the pricing of REITs such that their yield justify the risk incurred by investors. I predict REITs yield would likely be in the range of 8% -12% range in this new interest rate environment.

There is again no movement in the portfolio as the SRS Fund receive a record level of dividend in Q3. A total of $5,348.24 is received making it the highest quarter of income in the history of the fund.

Cash is now roughly 6% of the SRS Fund and I intend to continue growing the pot now that cash returns is attractive. While opportunities are abound with the recent market corrections, I haven found anything attractive enough when compared to the rising risk free rate.

I will continue to stay invested as I believe the fundamentals of the companies in the fund and with the earning season about to start, we shall find out which companies will swim, survives and thrive.