STI benchmark will be hard to beat
The three major banks now made 43.6% of the SRS Funds. This is very similar to their weighting in the benchmark Straits Times Index. Hence having almost 50% of the SRS Fund being identical to the benchmark any outperformance will be very difficult.
Apart from the banking sector, there are 6 more companies that are also part of the STI index. This means any outperformance will have to come from China-related holdings. There will also be some drag created from the minor cash holding.
The SRS Fund ended half year Jun up 2.56% versus STI 3.68%. The underperformance is due to some strong showing from STI components companies which the SRS Fund does not own. Nevertheless, I believe the SRS Fund will outperform the STI over the long term owning to better basic fundamentals of the underlying businesses.
Portfolio Segments
While the SRS Fund does not intend to mimic the benchmark, it has reached a point that the 3 local banks’ weighting is now a mirror image of the index. However, going forward, I foresee further investments outside of the index component, allowing room for outperforming the benchmark.
Dividends
Despite the huge reduction in REITs holding in the SRS Fund, dividends continue to surpass YoY in Q2. 1st half dividend also made a record high YoY. With a strong economic tailwind especially in South East Asia, substantial dividends growth will be expected in the 3-5 year time frame.
SRS Fund Value
The SRS Fund value came down slightly in Jun but we should not be too concerned about the month-to-month volatility. More attention should be paid to how the business fundamentals have improved over time.
Cash Levels
The cash level remain low as we continue to put cash to work with several opportunities to buy more of the current holdings the SRS Fund owns.
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