Singapore’s 20 most traded stocks with style factors of high Return-on-Equity (ROE) and low Debt-to-Assets have declined in-line with benchmarks in early 2020, however outperformed over the past 5 years by 5% per year.
The 5 of these 20 stocks with the lowest Debt-to-Asset ratios contributed the 3 strongest performers of the 20 stocks over the past 5 years, with annualised total returns ranging from 18% for Venture Corp to 97% for AEM.
ASEAN stocks with the same style criteria have also seen convergent performances to benchmarks in the 2020 YTD, yet longer-term 5 year outperformance. The 20 Singapore stocks have also seen net retail inflows totaling S$2.5 billion in the 2020 YTD.
As the US Federal Reserve Beige Book highlighted last night, no sector or district across the United States had been spared amidst abrupt economic contractions through to 6 April. Parallels in the global stock market saw every one of Singapore’s equity sectors in the red in both February and March.
Typically investors diversify portfolios over different stocks sectors, or where in the world stocks generate revenue or base their assets, however instances of major market swings and long term trends can also make a case for equity investors to select equities based on a style approach.
Stock Styles & Smart Beta
By style, investors can be referring to the size and volatility of a stock, in addition to potential value stocks, growth stocks, high dividend stocks or quality stocks. Investors that use such style criteria are also known as Smart Beta investors. Quality stocks are adjudged according to the ‘quality’ of their financial reports, including operating statements, balance sheets and cash flow metrics. Multiple screeners exist for investors to filter stocks for such criteria such as SGX StockFacts.
Investability criteria such as high Return-on-Equity (ROE) or comparatively low Debt-to-Asset Ratios are common criteria. Singapore Exchange lists close to 100 stocks with 12-month trailing ROE above 10% and a Debt-to-Asset Ratio below the local market average of 30%. Combining an element of tradability to these stocks, such as most actively traded stocks by turnover, can further refine the style criteria.
For the 2020 year through to 15 April, the 20 most traded SGX-listed stocks on 15 April that maintained ROE above 10% and a Debt-to-Asset Ratio below 30% had averaged declines of 19%. This was in-line with the 19% declines of the Straits Times Index (STI) and FTSE ST All Share Index.
Convergence was also observed across the ASEAN neighbours, with 20 stocks using the exact same criteria averaging a 21% decline in-line with the 21% decline of the FTSE ASEAN All Share Index.
Note, while the 20 stocks have seen net institutional inflows totaling S$1.88 billion, they have been recipient of S$2.5 billion of net inflows by retail investors.
Longer-Term Performance Divergence
Over the 5-year period ending 15 April, the 20 Singapore stocks generated median returns that delivered median +3% annualised total returns, compared to -2% for the STI and FTSE ST All-Share Index.
Likewise, the 20 ASEAN stocks (excluding those listed in Singapore), generated median returns also generated median +3% annualised total returns, compared to -5% for the FTSE ASEAN All-Share Index.
In Singapore and Malaysia, there was significant deviation between the 5-year median and average total returns, with the applied criteria capturing stocks with a history of outlier performances. For Singapore, the 5 stocks of the group of 20 stocks that currently maintain the lowest debt-to-asset ratios contributed the 3 strongest performers of the 20 stocks over the past 5 years. These 3 stock also have a common sectorial theme, with AEM Holdings, UMS Holdings and Venture Corporation technology, manufacturing-related stocks.
The 20 stocks that fulfilled the criteria, confirmed through multiple information services are tabled below.
|Net Insti Flow
|Net Retail Flow
|Jardine Matheson Hldgs||J36||54,790||24.6||2.7||0.2||-2.0||-12.4||10||20|
|DBS Group Holdings||D05||49,512||175.3||-24.7||2.9||-1,132.1||1,335.3||13||15|
|Oversea-Chinese Banking Corp||O39||39,114||79.2||-18.9||-0.3||-324.5||499.3||11||8|
|United Overseas Bank||U11||33,814||88.7||-23.2||0.8||-510.2||563.5||12||10|
|Singapore Tech Engineering||S63||10,487||25.2||-14.7||2.0||67.4||-7.1||26||25|
|Jardine Cycle & Carriage||C07||8,422||12.3||-29.2||-9.9||-32.3||55.4||14||29|
|Sheng Siong Group||OV8||2,030||4.0||8.9||15.3||7.9||-8.9||25||11|
|Ascendas India Trust||CY6U||1,386||3.1||-21.7||12.1||6.6||-2.7||29||29|
|Frasers Commercial Trust||ND8U||1,189||4.2||-20.5||3.8||11.7||-22.5||10||29|
|Rex International Holding||5WH||151||9.6||-43.4||-19.6||-2.8||5.0||15||9|