5 of Singapore’s 10 stocks with the highest positive quality factor exposure (with high ROE and low Debt-to-Equity) represent the Technology Sector and include AEM, Valuetronics, Silverlake Axis, Venture Corp and UMS.
Together the 10 stocks have generated positive average (+13%) and median (+15%) total returns since the STI made its 9 June 2839 high. Just one of the 10 stocks, SATS, underperformed the STI’s 7.5% decline in total return over the period with a 9.8% decline.
Of the 10 stocks, those recipient to net institutional inflow in both the 2020 year-to-date and the 9 June to 26 August period included AEM, Venture Corp, UMS and PropNex with the four stocks averaging 23% total returns since the STI high on 9 June.
Singapore Stocks Ranked with Most Positive Quality Factors
As detailed in the recent Factor Investing in Singapore Report by Nicolas Rabener (click here for full report), Quality is one of five Factors used by modern day analysts to characterise stocks.
Two key Quality Factors used by FactorResearch, and the broader research community, include financial returns and debt, both expressed in terms of the stocks’ total equity. The Factor Investing in Singapore Report, which was completed in collaboration with Singapore Exchange, ranked more than 100 stocks according to their Quality Factors. The 10 stocks that were amongst those with the most positive quality factor included AEM Holdings, China Sunsine Chemical, Valuetronics, Silverlake Axis, PropNex, Venture Corporation, SATS, Sheng Siong Group, UMS Holdings and Tianjin Zhongxin Pharmaceutical Co.
As a group, the 10 stocks outpaced the Straits Times Index (‘STI’) since the benchmark made its recent high of 2839 on 9 June and since the end of 2019, through to 26 August. The comparative median total return of the 10 stocks, relative to the STI total return is illustrated below.
Traditionally, Index providers and investors have grouped stocks according to their asset class, the country in which they are listed or conduct their business, the highly cyclical or less cyclical sector they represent, in addition to their liquidity. Factor investing is a relatively new method of grouping, that looks to link past and potential performances of stocks according to common factor attributes.
Company Financials & Economic Cycles
Common Quality Factor attributes can include net profit margins, return on equity and invested capital, or the degree of financial leverage and accrued income, and the Factor Investing in Singapore Report used an equal-weight combination of return-on-equity (‘ROE’) and debt-to-equity (‘DTE’) ranking stocks with the highest ROE and lowest DTE. Such financials can attract much investor attention in economic downturns.
The Factor Investing in Singapore report also noted that based on long term stock market and economic data in the United States - quality stocks tended to outperform in both economic slowdowns (along with momentum and low volatility) and economic recessions (along with low volatility and value). Quality stocks were not observed to outperform in recovery and growth phases.
Ranking Stocks by Quality Factors
The table below provides the list of stocks that are amongst the largest and most traded Singapore stocks that demonstrated the highest positive quality factors. As noted above this was based on ROE and DTE financial metrics. The 10 stocks, sort by the highest positive Quality Factor at the time Factor Investing in Singapore report was published are tabled below.
Debt to Equity
|Tianjin ZX USD||T14||2199.0||0.53||7.0||10.1||12.1||0.6|
Since the STI formed its 2839 high on 9 June, it has declined by 9.0%, with dividend distributions trimming that decline to 7.5%. During this time, just one of the 10 stocks has underperformed the STI, with SATS declining 9.8%. Of the 10 stocks tabled above, SATS maintained the highest long-term debt to equity ratio. As noted in its most recent Annual Report, SATS increased its Group total debt to S$624.4 million in FY20 (ending 31 March) from S$95.7 million in FY19, which included increasing Company total debt to S$468.9 million in FY20, from S$95.4 million in FY19. This was to strengthen the Group’s balance sheet, hence allowing the Group to weather the impact from COVID-19 pandemic.
The next 5 stocks that ranked the highest in the Quality Factor were China Aviation Oil, Frencken Group, SIA Engineering, ST Engineering and Hi-P International.
Quality Leaders with Net Institutional Inflow in 2020 YTD
4 of the 10 stocks have been recipient to net institutional inflow in both the 2020 year-to-date and the 9 June to 26 August period included. These four stocks included AEM Holdings, Venture Corporation, UMS Holdings and PropNex with the four stocks averaging 23% total returns since the STI high made its 2839 high on 9 June.
PropNex’s primary business is in the provision of real estate brokerage services comprising real estate agency and project marketing services – this week a 10 in 10 Report (10 questions in 10 minutes with SGX-listed companies) was published for PropNex and can be read here.
In the Spotlight: Factor Investing in Singapore Webinar
Nicolas Rabener is the Founder & CEO of FactorResearch. The FactorResearch team provides quantitative solutions for factor investing in equity markets globally.
To watch FactorResearch’s 11 August webinar with the SGX Academy that delved deeper into the performance of classic equity factors in Singapore, such as value, growth, size, momentum, volatility, quality – click here.