Investment returns for a balanced portfolio of assets in the current year are likely to be modest but adequate with annualised rates of 5% in US dollar terms, according to Bank of Singapore’s chief investment officer Hou Wey Fook.
A 5% return is a reflection of conditions in financial markets where the risk-free yield from holding government bonds remain very low, says Hou. “Some may deem such returns to be low but all financial assets are priced off risk-free assets,” he says. “In the past, back in the 1990s or 2000s, the risk-free [return] was 4% to 5%, and the return on risk assets would have been about 10%. But the risk-free [return] today is almost zero, so 5% is a very decent return.”
Hou adds that in the volatile markets of today, “if someone tells you they can do 10% to 20%, you should know he is taking on a lot of risk, through leverage or something else, because you can't squeeze water out of a rock.” A 5% return should therefore be viewed as a “normal return” in today’s markets and accepted as such until risk-free rates on government bonds or [Singapore] bank deposits rise.
The returns on Bank of Singapore’s model portfolio are derived from a 40% weighting of dividend-yielding equities, 30% from investment-grade bonds, 20% in high-yield bonds and 10% in hedge fund products.
To generate further income, Hou also recommends the strategy of selling covered call options on equities for high net-worth investors. “This will generate additional returns from the stocks in your portfolio,” he says. “You can sell call options on the stocks which are trading below fair value instead of waiting for them to reach fair value which may take a while because we are in range-trading markets. In return, you are paid an income [from the option premiums] by selling options on your undervalued stocks.”
While the strategy may mean missing out on further upside in the stockmarket if the option-holder decides to exercise their options to buy the affected stocks, Hou reckons that such an outcome is “not a bad thing”. “In the first place, if you had deemed the fair value to be $50 for a stock, and you had sold it at fair value, you would have received your capital gains along with your option premiums. You will have made a total return that can be re-deployed into other stocks to repeat the process,” he advises.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
A 5% return is a reflection of conditions in financial markets where the risk-free yield from holding government bonds remain very low, says Hou. “Some may deem such returns to be low but all financial assets are priced off risk-free assets,” he says. “In the past, back in the 1990s or 2000s, the risk-free [return] was 4% to 5%, and the return on risk assets would have been about 10%. But the risk-free [return] today is almost zero, so 5% is a very decent return.”
Hou adds that in the volatile markets of today, “if someone tells you they can do 10% to 20%, you should know he is taking on a lot of risk, through leverage or something else, because you can't squeeze water out of a rock.” A 5% return should therefore be viewed as a “normal return” in today’s markets and accepted as such until risk-free rates on government bonds or [Singapore] bank deposits rise.
The returns on Bank of Singapore’s model portfolio are derived from a 40% weighting of dividend-yielding equities, 30% from investment-grade bonds, 20% in high-yield bonds and 10% in hedge fund products.
To generate further income, Hou also recommends the strategy of selling covered call options on equities for high net-worth investors. “This will generate additional returns from the stocks in your portfolio,” he says. “You can sell call options on the stocks which are trading below fair value instead of waiting for them to reach fair value which may take a while because we are in range-trading markets. In return, you are paid an income [from the option premiums] by selling options on your undervalued stocks.”
While the strategy may mean missing out on further upside in the stockmarket if the option-holder decides to exercise their options to buy the affected stocks, Hou reckons that such an outcome is “not a bad thing”. “In the first place, if you had deemed the fair value to be $50 for a stock, and you had sold it at fair value, you would have received your capital gains along with your option premiums. You will have made a total return that can be re-deployed into other stocks to repeat the process,” he advises.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
0 comments:
Post a Comment