Monday, September 15, 2014

Stocks to maintain edge over bonds

NSTPress: THE recent wobbly stretch in both stocks and bonds may persist for the short term if the United States Federal Reserve (Fed) this week lives up to expectations and signals the days of near-zero interest rates are numbered, but it is unlikely to tip valuation scales in favour of bonds any time soon.
Anxiety over the two-day Fed policy meeting, centred on expectations the central bank will likely drop its pledge to keep interest rates low for a “considerable time”, was a primary driver behind stocks snapping a five-week winning streak last week and bonds absorbing their steepest losses in at least two months.
Top economists at several firms say they see at least even odds the Fed will nix the phrase from its forward guidance, which some traders may interpret as meaning that rate hikes could come as early as next March.
“If investors feel the Fed is becoming more hawkish, that’s actually a negative for all asset classes with the exception of the dollar,” said Chris Gaffney, senior market strategist at EverBank Wealth Management in St Louis, Missouri.
Still, few expect such a move would translate immediately into a long-term change in investors’ bullish view of stocks, especially relative to bonds.
To be sure, signs of sooner-than-expected interest rate hikes could chip away at investors’ optimistic view of stocks, which scaled to new heights in no small part thanks to the Fed’s quantitative easing programme and decision to hold interest rates near zero per cent for nearly six years now.
But with bond yields still extraordinarily low by historic standards, and unlikely to rise drastically, many investors see equities as one of their few prospects for long-term growth.
Market watchers say it is unlikely the prospect of interest rate hikes will significantly dampen investors’ taste for stocks or prompt a large-scale reallocation of funds into bonds.
“There’s no doubt that there will be some volatility in the short term, but at some point equilibrium will come into the market,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
While measures such as the forward price-to-earnings ratio on the S&P 500 suggest stocks are their priciest in nearly a decade, other measures of relative valuation to bonds remain skewed in favour of equities.
The S&P’s so-called earnings yield, the inverse of the price/earnings ratio and a common yard stick for comparing equity valuations against bonds, is roughly 6.3 per cent. That is 3.7 percentage points higher than the 10-year Treasury yield, currently 2.6 per cent, whereas the long-term spread between the two is about 1.5 percentage points.
When measured against corporate junk bonds, the bond market’s biggest competitor to stocks for asset flow, valuation math is tilted even more heavily in favour of equities. The average yield to maturity on junk bonds is just 6.3 per cent, according to Bank of America/Merrill Lynch fixed income index data, but the long-term average junk yield is 9.4 per cent.
Moreover, US corporate earnings are projected to resume double-digit growth in coming quarters, according to Thomson Reuters data, which would keep a lid on P/E multiple expansion, perhaps even compress it if profit growth outpaces stock price increases.
That suggests stocks remain the better bet for returns, at least until interest rates rise significantly enough to return relative valuation measures between the two to historic norms.
In the current market environment, “there’s not really a better alternative to stocks right now”, says Gaffney. Reuters

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

Wednesday, September 10, 2014

Axis REIT set to breach RM2b mark

NSTPress: AXIS Real Estate Investment Trust Managers Bhd (Axis REIT), which has 30 properties in its trust worth about RM1.52 billion, expects to surpass the RM2 billion mark with the acquisition of five new properties for RM472 million this year.
Axis REIT Managers Bhd (ARMB) chief executive officer Datuk Stewart LaBrooy said based on the projected unit holdings, it expects the five properties to yield an additional 2.1 sen per annum to its income distribution per unit (DPU) for 2015.
The trust’s first quarter core net profit of RM22.3 million improved by 8.5 per cent year-on-year and 3.9 per cent quarter-on-quarter, in line with most analysts’ estimates.
It announced a DPU of 5.3 sen, a 17.8 per cent rise year-on-year, which included a special 80 sen DPU arising from the Axis Plaza disposal on March 25.
For the first half of fiscal year 2014, Axis REIT posted a RM43 million net profit, while total DPU was 10.6 sen.
This was 3.1 per cent and 16.5 per cent more than the same period last year.
“Portfolio growth has always been a core strategy of Axis REIT. We have demonstrated this by increasing our portfolio size from five to 30 assets over the past nine years and this is expected to expand to 35 assets by the end of 2014. However, we do not buy real estate for the sake of growing.
“In 2013, we held back from acquiring any assets because the market was overheated and asset prices were inflated with low yields.
Therefore, we held back from buying anything until this year when we see valuations and yields returning to normalcy.
“In addition, we have been actively been involved with asset enhancement initiatives (AEIs) for our portfolio. This involves the continuous improvement of our assets to attract higher rentals and better returns,” he said.
Recent projects that underwent AEIs include Quattro West, Infinite Centre and Axis Business Park. Axis REIT is currently working on Axis Business Park Block C.
“This drives rental and valuations, providing our unitholders with more valuable real estate and dividend returns in the long term,” LaBrooy said.
On what would be the optimum asset size for Axis REIT to improve investor interest, LaBrooy said Axis REIT has one of the highest free floats of their units in the Malaysian REIT space, whereby only 16 per cent of the units are retained by the promoters.
“However, we are heavily subscribed locally with our international component remaining low at 7.64 per cent. From our experience, the interest from foreign investors is trig gered when a fund size is larger than US$1 billion (RM3.16 billion),” he said.
LaBrooy added that there is growing interest in Axis REIT from foreign funds but the stocks liquidity is still not optimum to attract many international funds.
“So our initial target will be to cross the US$1 billion mark. However, in saying that, there is no optimum asset size for Axis REIT.
We hold a firm belief that we are not in a contest to see how big we can become but rather what assets we can add to the portfolio that will reward our unitholders in the long run.
We will grow but only with quality,” he said.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

Riding on real estate investment trusts

NSTPress: REAL Estate Investment Trust (REIT) is the best ally when it comes to a balance of risk-return for long-term value investing.
The fact is, predictability is what REIT stocks offer.
While the dividend per share (DPS) of many dividend-paying companies (including blue chips) were affected post-2008 recession, the DPS of many Malaysian REITs (M-REITS) remained unscathed, which speaks volumes about the competency of the managers and defensiveness of REIT assets.
The operations of a REIT are governed by a trust deed, which specifies how the manager manages and administers the REIT in line with its objectives.
REIT is also regulated by the Securities Commission in terms of how much it could borrow to invest in real estate. This basically prevents a situation where a REIT becomes overgeared and unable to repay its debt obligations.
The best thing about REIT is its dividend-yielding nature, where it distributes up to 90 per cent of its taxable income to investors.
REIT investment has also brought a good amount of profits for its investors, averaging between six and eight per cent.
Affin Investment Bank maintains its neutral stance on the M-REIT sector.
Based on its research note in April, it said the M-REITs cycle is peaking, while the outlook for upward rental reversion appears to be moderating.
“We believe that the M-REITs sector remains a landlord’s market until 2017. Our ‘neutral’ rating is underpinned by our view that the M-REITs’ yield spread against the 10-year MGS may plateau. The stable economic growth may underpin the M-REITs’ stability amid rising inflation,” it said.
In Malaysia, there are currently 14 REIT counters and the policy of growth rests with the board of each REIT manager of the respective REITS.
With today’s economic climate, the larger M-REITs, such as those above RM1 billion in market capitalisation, are performing better than the smaller ones and command premiums to their net asset values (NAVs).
“It points to the ability of the respective REIT managers to grow the size and returns of the various trusts.
Availability of suitable assets that are yield-accretive can be very challenging, especially for the office and mall sectors, where prices are currently sky high and yields are very low.
“The acquisition policy of all the REITs now is either from third parties or from their respective promoters.
What can be done would be to allow M-REITs to develop up to 10 per cent of their asset size like in Singapore and Hong Kong, where the regulators have recognised the difficulties of REIT to grow in the traditional manner,” Axis REIT Managers Bhd (ARMB) chief executive officer Datuk Stewart LaBrooy told Property Times.
On whether there are enough assets available for M-REITs to grow, LaBrooy said there is no shortage of products coming into the market.
“There is a large number of malls and offices being built both in the Klang Valley and Johor that could, over time, become acquisition targets for M-REITs with those asset classes in mind. The glut may drive down prices and offer REITs an opportunity to acquire assets at more attractive prices. The respective managers have to be able to read the cycle and act accordingly,” he said.
“In performance terms, we have tracked the Kuala Lumpur stock exchange fairly closely and in past years outperformed the exchange.
Other M-REITs have displayed similar characteristics,” LaBrooy said.
ARMB is the manager for Axis Real Estate Investment Trust Managers Bhd (Axis REIT), which has a market cap of RM1.53 billion. The trust has 30 properties worth about RM1.52 billion.
Axis REIT is proposing to acquire three new properties for RM280.5 million.
Labrooy said the total asset value of the fund will be RM1.87 billion after the acquisition of the new properties, of which sale and purchase agreements (SAP) have been executed on August 4.
The properties are located in prime areas in Shah Alam.
Axis REIT is also in the midst of acquiring two industrial facilities in Penang, and Johor for RM191.5 million where the vendors have accepted its Letters of Offer.
With the signing of the SAP for the two industrial properties, the fund will cross the RM2 billion mark in total assets, LaBrooy said.
He added that the acquisition of all the five properties is expected to be completed by the end of this year, and they are expected to generate a net income (before financing cost) of seven per cent each.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

SC organises investment awareness and literacy campaign

TheStar: PETALING JAYA: The Securities Commission (SC) is organising InvestSmart, a comprehensive investment awareness and literacy campaign.
“InvestSmart Fest is the first retail investor event of its kind organised by the SC, with 37 other key capital market industry players,” chairman Datuk Ranjit Ajit Singh said in a statement.
The six-day event, which began yesterday at 1 Utama Shopping Centre, ends on Sunday.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

Monday, September 8, 2014

Minimum returns for investment-linked products?

TheStar: A dire concern in the life insurance industry relating to investment-linked policies (ILP) – a minimum guaranteed sum as returns for such policies – is being sorted out.
A source from the National Association of Malaysian Life Insurance Field Force and Advisers (Namlifa), which had voiced its concern on the matter, told StarBizthat officials from Namlifa had informal talks with some officers from the central bank.
The source said they had highlighted the need to offer a minimum guaranteed sum to protect policyholders of ILPs against aggressive risk-taking by insurers in their investment strategies.
The minimum guaranteed sum which Namlifa is looking at is anywhere between the current fixed deposit rates and Employees Provident Fund (EPF) returns. This, the source said, was to ensure equitable protection and returns to policyholders.
ILPs or commonly known as investment-linked products have both life insurance protection and investment components. Investment-linked products are among the fastest growing products in the life insurance segment. In the first half of 2014, they grew by 59.4% to RM1.68bil and last year these products grew by 59.5% to RM3,26bil.
Some consumers prefer ILPs as they want more exposure to investments than other life insurance products, thus transferring the risk to the consumer.
The premiums are used to buy units in investment–linked funds of the policy-holder’s choice and used as cost of insurance for life insurance protection.
At the moment, ILPs usually do not have a minimum guaranteed cash value. The value of the ILP depends on the price of the units in the fund which in turn depends on the fund’s performance in the market. The cash value is further exhausted by the escalating cost of insurance at an older age.
According to the source, insurers should consider a minimum guarantee of return as ILPs are actuarially calculated, taking into account the uncertainties of the future including fluctuation of equities based on historical performances and inflation.
“We are of the opinion that the returns should be realistic, with a minimum guarantee on returns. Assurance should be given to the policyholder with a guaranteed protection and a reasonable return for holding on the policy for the long term.
On another matter, he said insurance companies were also now cutting down on bonuses on traditional products because of the higher costs of doing business due to poor market performances.
Some industry observers reckon the move by Namlifa will gain support from consumer associations and policyholders, and this will add pressure on the regulator to look seriously into providing a minimum guaranteed sum for investment-linked products. This is because these products are among the top-selling products of life insurance companies.
Meanwhile, Consumers Association of Penang (CAP) president S.M. Mohamed Idris said having a minimum guaranteed sum did not mean that consumers would be better off.
“What about limiting the relevant charges?” he asked. “Based on the many complaints that we have, consumers have not been made fully aware of how ILP works and the risk involved when the wrong product is chosen. Thus they end up making losses.
“Consumers who had no interest in getting another insurance policy were told that they would be investing their money only later to discover that it is an ILP.
“Life insurance is about protection for dependents. Thus we believe that investments and protection should be two separate issues. It is already difficult for consumers to understand regular policies like whole life and term, and ILP is even more complicated,” he said.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.