The SRS Fund Oct 2024 Update

Earnings roll on

As the enthusiasm for the Fed interest rate cut and announced China stimulus subsided during October, the focus has now turned to upcoming earnings seasons.  

First reported are the US banks which reported robust earnings with favourable but cautious outlooks. Then came the big tech and boy did they deliver as the AI steam engine goes rolling on.

Then Singapore REITs are a mix of hits and misses as the impact from the newly announced rate cut has yet to make its way into reduced interest costs. Nevertheless, some REITs show signs of a revival with meaningful rental reversions. 

It was, however, an uneventful month for the Singapore market.  The SRS Funds perform in line with the market falling off slightly from the high of September. 

The key decision taken during the month was additional investment into HR Net group.  Now HRNet make up 3.9% of the SRS Fund being the biggest SME holding in the portfolio.

The thesis for HRnet is simply their exposure to China.  When China announced their big stimulus plan all China related stocks went through the roof.  To my surprise, HRnet did not move in price but make no mistake to equate price to business fundamentals.  

HRNet has significant business in China and even some of their board members are Chinese.  So the increased investment from the SRS Fund is another bet on China’s recovery story.  

The SRS Fund has gained 14.8% year to date versus the STI benchmark of 10.7%. Assuming the STI ETF pays a 4% dividend, the SRS Fund would have matched the benchmark in an extraordinary year where the index makes double-digit returns. Given the SRS Funds usually outperform the index during the down years, keeping pace with the index is also important in a good year to gain Alpha over the long term.

Portfolio Segments

While some may consider having the 3 major banks constituting half of the fund as being risky, I beg to differ. This is especially so when the prospect of South East Asia remains very good in a bipolar world of US versus China.

South East Asia or Asian can be a neutral and peaceful region that prospers while the 2 superpowers have a go at each other. This environment can only be good for sound banking practices. The SRS Fund will continue to stay invested in such good businesses for many years to come.

Dividends

The first month of Q4 provided only $90 of dividend income. More will likely be announced and collected during the upcoming earnings season. Assuming no earnings surprises, the SRS Fund will again hit a record dividend collection in 2024.

SRS Fund Value

The SRS Fund retraces to $438,647.87 as the market takes a break from China’s equity record-breaking run. With the upcoming contribution deadline in Dec, Fund value should end the year at around the $450k region.

Cash Levels

Cash level hit a record low with investment opportunities appearing and a significant amount of cash was used for investment into HRnet group.

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