Ask CIO: Do Singapore REITS and Asia dividend stocks add portfolio resilience?
In recent conversations with our clients, we received many interesting questions, and will be addressing them in a new series of CIO Perspectives, “Ask CIO”. We hope you find this insightful and enjoyable.
The gyration in risk assets since October 2018 has triggered a broad-based flight to safety. One beneficiary of this capital flight has been Singapore Real Estate Investment Trusts (S-REITs). Since the start of the year, S-REITs have rallied 7.2% and outperformed the domestic equity market by 2.9 percentage points. The outperformance stems from two factors:
- A dovish Fed: In its December Federal Open Market Committee (FOMC) meeting statement, the US Federal Reserve removed the phrase “further gradual rises” (on rates), while emphasising the need to be “patient” when it comes to policy tightening – given that inflation in general is deemed as “muted”. The surprising dovish tilt in Fed-speak drove the US Treasury (UST) 10-year yield lower. Historically, S-REITs tend to outperform when bond yields are stable or trending south – the latter would translate into a wider yield spread. At current levels, S-REITs are yielding c.6.2% and this translates to a spread of 4.1% over the Singapore 10-year yield.
- Heightened volatility: 2019 is expected to be a year of elevated volatility amid prevailing geopolitical and policy uncertainties. This will be beneficial to safe-haven assets like S-REITs, which display close correlation with the S&P 500 implied volatility.
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