With 3 sessions remaining in 2Q20, the STI’s best performing companies (excl. REITs) in the quarter were Wilmar (+29%), Venture Corp (23%), Sembcorp Industries (+22), Yangzijiang Shipbuilding (+19%), Keppel Corp and City Developments (both +16%). The companies averaged a 21% total return outpacing the STI’s 6%.
Excluding the 6 REITs and SGX, as many as 17 of the 23 companies that currently make up the STI ranked at least once amongst the STI’s strongest 5 companies for the 5 quarters spanning 2Q19 through to the current quarter.
3 of the companies – agribusiness Wilmar, and developers UOL and City Developments – have ranked amongst the STI’s strongest 5 companies for 3 of the 5 quarters. At least one of the 2 developers have been amongst the STI’s strongest 5 companies in each of the 5 quarters.
While the fastest growing sector or the Straits Times Index (STI) is Real Estate Investment Trusts (REITs), a key strength of the STI is that it is highly diversified with the breadth of industries represented by the 24 companies that make up the remainder of the constituents. Omitting Singapore Exchange from this analysis and narrowing the relevant constituent companies to 23, one of the telling examples of diversity is that over the past 5 quarters, from 2Q19 through to the current 2Q20 to date, as many as 17 of the 23 current STI companies have ranked amongst the 5 strongest companies of the STI.
In multiple instances, highly competitive performances saw identical performances for the fifth strongest company in the quarter, as detailed below in 3Q19, 1Q20 and the 2Q20 to 25 June.
Total Returns of the 5 Strongest STI Companies in Recent Quarters
|2Q20 to 25 June|
Note tables above consist of 23 current companies that make up the STI. The remaining STI constituents not included in the table include Singapore Exchange and the 6 REITs. Not included above, due to STI omission from the STI in 2Q20, SPH was third strongest STI company in 1Q20 and amongst least strongest in 3Q19.
As detailed in the tables above, had the investor held a balanced basket of STI companies that ranked as the best performers for each of the five quarters, the theoretical total return (excl. transaction fees) would have amounted to 35%, which would have outpaced the STI by as much as 48% based on the individual quarterly performances.
However, impact of broader market volatility meant that in 3Q19 and 1Q20 the five least performing companies declined significantly more than the strongest companies. This increase in risk-to-reward over those 2 quarters exemplifies how quarterly stock rotation is more suited to more educated and experienced investors who can make more informed decisions.
Wilmar International, UOL Group and City Developments have each been amongst the five strongest of the 23 companies a total of three times over the past five quarters. Another 5 stocks, Keppel Corp, SingTel, ST Engineering, Venture Corporation and Yangzijiang Shipbuilding were amongst the strongest of the 23 companies twice over the past five quarters. While the Banking Sector provides a strong heavyweight cornerstone sector of the STI, UOB and OCBC each ranked once amongst the 5 strongest companies in each of the five quarters.
For the 5 companies that rank amongst the STI strongest in 2Q20 with three sessions to go:
Wilmar International – reported Group core net profit improved by 22.5% from US$250.3 million in 1QFY19 to US$306.5 million in 1QFY20 (ending 31 Mar) on the back of strong performances from consumer products, especially in China, and tropical oils downstream operations. Click here for more.
Sembcorp Industries – Announced a demerger from Sembcorp Marine, thereby separating the energy and urban businesses from the Offshore & Marine business and unlocking shareholder value by creating two focused companies (click here for more). Sembcorp Industries will announce its 1HFY20 (ending 30 June) Financial Results on Friday, July 17, 2020 after trading hours.
Venture Corporation – in its 1QFY20 (ending 31 Mar) Business Update, the company noted 1QFY20 revenue performance was gated by disruptions to the global supply chain in China, Malaysia and Singapore; and factory lockdowns in China, Spain, US and Malaysia, mainly impacting the second half of 1Q20. Venture Group noted its businesses are deemed as suppliers of both “essential products” as well as “essential services” and by end April, most if not all of its operating entities received exemptions to operate without headcount or working hours constraints. As such, the supply side its businesses were noted to have resumed operations while continuing to comply with all safety and precautionary measures for employees who work on sites (click here for more).
Yangzijiang Shipbuilding – on 23 June announced it had secured new shipbuilding orders for four vessels recently worth approximately US$102 million, which include two LNG-tank carriers and two 56,000DWT bulk carriers. With these orders, the Group has secured a total of US$517 million worth of orders so far in 2020 (click here for more).
Keppel Corporation – Among multiple developments, on 28 May, Keppel Corporation announced its Vision 2030 to drive the company’s long-term strategy and transformation. From a conglomerate of diverse parts, Keppel plans to refocus its portfolio to be an integrated business, providing end-to-end solutions for sustainable urbanisation, with an asset management arm to fund the Group’s growth and provide a platform for capital recycling (click here for more).
City Developments – in its 1QFY20 (ending 31 Mar) Operational Update – noted that while operating performance was affected by COVID-19 Global Pandemic, with as much as 80% of CDL's retail tenants in Singapore closed due to enhanced circuit breaker measures, the Group maintained a strong capital position. Its cash reserves were S$3.3 billion as of 31 March with undrawn and committed credit lines of S$2.3 billion (click here for more).