2019 Portfolio Review
The year 2019 was filled by geopolitical developments such as Brexit, the US-China trade war, the Hong Kong riots etc. While Singapore's open economy is vulnerable to all the geopolitical risks, the Straits Times Index still managed to close with a 5% gain (9.4% including dividends).
Real estate investment trusts (REITs) was one of the top performers' sector in 2019. Portfolio restructuring, asset acquisitions and fundraising are the keywords that filled the REITs' headlines. Out of the 40 over REITs, 17 of them raised a total of $6.6 billion of equity funds in 2019 to acquire new assets. With most of the REITs are trading at compressed yields, the majority of the acquisitions are likely to be accretive.
One of the key things that investors should take note is that most of the REITs' managers and sponsors are incentivised to increase assets under management (AUM) as their fees are usually calculated as a percentage of AUM or a percentage of the new acquisitions' values. Investors need to evaluate and make sure that the REITs' managers are acting in the interest of the shareholders.
2019 Portfolio Review
Our REITs portfolio has generated a total return of 25% in 2019! As a passive income investor, we are proud that our portfolio generated a 13.6% yield on cost!
We have selected 9 REITs in 2019. All generated positive returns. The top performer was Capitaland Retail China Trust.
And luckily, we did not add any of the bottom five Singapore REITs in our portfolio.
Overall, we outperformed the STI by more than two times!
3 key things likely to continue in 2020
With limited supply in the next two years, industrial REITs should continue to see favourable demands.
The compressed yield in Singapore assets has pushed the REITs to continue to search for yield-accretive assets overseas. We shall see the larger REITs with substantial debt headroom continues to make new acquisitions in 2020.
The IPO pipeline continues to be very strong, most likely with oversea assets from the US, Europe, China and Australia.
Summary
Moving into 2020, the geopolitical uncertainties will likely to remain as the key risk to both economic growth and financial markets. However, there are still plenty of things to be optimistic about, the booming data centres, 5G technology, digitalisation 4.0 etc. Investors should continue to stay invested, manage portfolio risks actively through portfolio rebalancing.
We will be conducting major portfolio rebalancing in the next two weeks. Subscribe to our Premium Newsletter to get access to it.