Mind Changing Facts

When the facts changed a flexible mind should have the ability to accept the changed facts and adjust accordingly.  For some time now,  it has become clear to me that the low interest rate environment that we enjoy for the past many decade has come to an end.  Inflation will be a beast likely to be fought for many years to come and interest rate will likely be more normalise to prevent inflation from spiking.

In this environment, real estate investment trust (REITs) are likely to experience a painful adjustment with distribution falling as rental reversion slowly catches up to the increasing cost and expenses.  

Sure inflation will ensure higher pricing power which will normalise the cost-revenue dynamics.  However the path to this normalisation will be difficult, rocky and likely take many years.  

As a result and given the opportunity by the market, I have accordingly able to reduce the REITs exposure in the SRS Fund down to 30%.  While I would have prefer to have even lower exposure at 20%, opportunity (to sell at a reasonable price) would have to emerge

The SRS Fund Review

The SRS Fund continue its slight upward trajectory up 2.86% year to date versus the STI return of 0.6%. Keppel Corp and the newly named Seatrium (Sembmarine) leads the charge for the portfolio.

There was also some reposition of the SRS Fund during the month as I completely dispose of Capland China Trust to reduce my exposure to the REIT sector. Together with a reduction in Capland Integrated Commercial Trust, I use the proceeds to add to the Fund’s UOB position analysing that it should out perform after its completion of the purchase of retail banking business from Citi in the medium term.

One should be able to see it in the update in May of these changes as it was done toward the end of April.

Only the DBS year end dividend was recorded for the month of Apr despite the number of companies going ex dividend. We should however see another record quarter in Q2 in terms of dividends. Overall with the economy doing well and rebalancing of the Fund away from REITs, the Fund should see steady growth and continue to outperform the index in the medium term.