Chasing Yields

Monetary easing - we've heard this term on a daily basis for the past 6 years. The implications of such a dramatic reaction by the Fed post-financial crisis, and what Milton Friedman analogizes as 'dropping money out of a helicopter' is unseen and untested in history. 

Blackrock's 'Investing for a New World' campaign hit the nail on its head. So intelligently slick - It’s a new world. Yields are low. Markets are volatile. Confidence is scarce. One question is on everyone’s mind: So what do I do with my money?

Let's talk about yields. 

It is first crucial to understand the difference between yields and returns. Stealing snippets from Investopedia, while both terms are often used to describe the performance of an investment, yield and return are not one the same thing. Return, expresses what an investor has actually earned on an investment during a certain time period in the past. It includes interest, dividends and capital gain. In other words, return is retrospective, or backward-looking. Yield, on the other hand, is prospective, or forward-looking. It measures the income, such as interest and dividends, that an investment earns and ignores capital gains.

In Mr Greenshoe's opinion, yields are quite simply the most important investing tool in this ‘new world’ defined by Blackrock. Almost all investment opportunities in today’s market yields beats the bank deposit rate. The first question is – can you beat inflation. The second question is – can you get rich. Fret not, investment opportunities lie aplenty.

Focusing on Singapore, we have no lack of yield plays. In fact, the yield market in Singapore yield market is undoubtedly the strongest in Asia. From the creation of the first REIT in 2002 by CapitaMall Trust to the initiation of the Business Trust structure in Asia in 2004, the little red dot now has 33 Singapore Real Estate Investment Trusts (REITs) and 13 Business Trusts (BTs). As of yesterday, REITs and BTs make up 9.8% of the total SGX market cap. A reason for their significant prevalence lies in the numerous government tax incentives and structuring mechanisms that make these yield stocks not only good to buy but also good to hold. Mr Greenshoe will pen a detailed article on S-REITs and S-BTs in the coming weeks!

To end off with a food for thought - c.70% of all Main-Board IPOs in 2013 and 2014 were yield stocks.  

Impressive? Indeed.

GS