Sunday, April 22, 2018

My thoughts on smart monies outflow from REITs, Telcos and other defensive stocks

Based on Donovan's analyses, Smart Monies are moving their funds away from Defensive Stocks, REITs and Stocks in favour of banks, commodity, Oil & Gas, energy sector - interest rate rising drives these movements.

This creates strong support for counters they made their entry and then cause them to be bullish, and price weakness on the counters they have sold (hence bearish due to weak holders).

Should you panic then when you find your defensive counters becoming bearish?

First reflect and examine why did you buy these counters. Usually our motive behind buying these stocks is their resilience and ability to provide realised gains in the form of passive income. Capital gain may be part of the goal, but not necessarily the main one.

REITs, trusts and most defensive stocks are reliant on debt/gearing, so indeed it is true that rising interest rates will have some impact. But it's hardly as straightforward as rising interest rate = lower distribution.

For starters, the debt may have their interest rate fixed for a period of years before they have to refinance at the new higher rate (credit rating also plays a part in determining how long the fixed rate lasts).

Then there's also how rising interest rate is the result of improving business environment, and how they will be able to pass the cost on.

Shouldn't we then examine company fundamentals instead?

Then next examine the reasons for the institutional investors selling off such counters. Sometimes institutional investors sell off not because the prospect is gone, but because they have their own restrictions to work with hence having to rebalancing their portfolio, something us retailers need not worry about to such extent.

If anything, the price weakness can present opportunity to enter at a better price and hence better yield-to-cost (provided the company in question isn't experiencing a decline in its fundamentals lah).

If got concern of catching a falling knife, maybe DCA loh.

Market is cyclical, and smart monies will eventually flow back in anyway. Think about it: if they really are gloomy about it, they would exit in larger positions and this will cause even larger panics.

Having said all these, Donovan's analyses are pretty good - but I felt like offering a counter-view regarding these.

I guess what I want to put across is...
Just keep calm and invest according to your own set of criteria and goals; end of the day, make money can already. :)

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