The following coverage is from OCBC Bank Investment Seminar conducted on 9 July 2013.
Continue Drip-Feeding into Equities
We remain positive on global equities, especially with the recent correction in prices. Going forward, markets will remain volatile with uncertainties about Fed monetary policy and China. However, we see this as an opportunity to buy, and continue to recommend that investors drip-feed capital into the markets.
The US and Japan are still our preferred regions: an allocation to US equities is an important element of your core portfolio. Meanwhile, as expected, investment-grade bonds have borne the brunt of the rise in long-term interest rate; we prefer high-yield bonds.
Equity funds: With U.S. economic data pointing to increasingly solid growth and the outlook for corporate earnings steadily improving, investors can gain exposure to the country’s recovery through the Franklin U.S. Opportunities Fund. The fund invests in leading growth companies with a sustainable competitive advantage.
Investors who prefer a geographically diversified fund that captures both yield and growth could consider Blackrock’s BGF Global Equity Income Fund, with monthly pay-out amounts of around 3 per cent per annum. The fund provides exposure to developed markets such as the U.S., investing in quality companies with strong growth potential that deliver a steady dividend stream.
Equity-Linked Convertibles Investments: We recommend cyclical sectors to investors looking to move into equities. With its large deposit base, DBS should benefit from a rising interest rate environment; a good ELCI entry level may be when spot prices reach S$15.25.
In the U.S., the IT sector looks set to benefit from an expected increase in infrastructure spending. Clients may consider Qualcomm, which is well placed over the coming year to benefit from the introduction of faster 4G mobile networks.
Bonds: Shorter-dated bonds can reduce interest rate risk in the event of possible future rate hikes, and clients may consider Courts Asia SGD 4.75 per cent maturing in 2016. A familiar household name, Courts Asia enjoys a healthy market share in both Singapore and Malaysia, and its liquidity position offers reasonable financial flexibility.
Bond Funds: High-yield bonds may be more resilient than investment-grade instruments in a rising interest rate environment. The Allianz US High Yield Fund provides exposure to U.S. high-yield credits that should benefit from the recovering economy. The fund has delivered consistent returns over more than a decade and pays out a stable $0.80 per unit per annum on a monthly basis.
Currencies: As U.S. economic data improves, the expected reduction of Fed asset purchases later this year should help to support the greenback against other major currencies.
The Australian dollar remains weak amid poor Chinese and domestic economic data, and this could be exacerbated in the near term by the likelihood of another interest rate cut by the Reserve Bank of Australia. Holders of Australian dollars may wish to take advantage of any rebound in the currency to reduce their holdings. They should do so close to the US$0.95 level via FX or Dual Currency Returns.