Global stock markets are buoyant, but not frothy. Our first portfolio of 10 global stocks last year returned 98.1%. Here are this year’s top picks
Almost to a tee, market commentators are all saying 2021 will be a better year for investors. Given the carnage triggered by the Covid-19 pandemic, economies are all enjoying a lowbase effect from which the performance indicators in 2021 will be measured.
There are other tailwinds too. Relative to other economic downturns, Covid-19 is deemed an exogenous shock, and not an inherent rot in the financial and economic systems. Even so, given how the virus is both a public health and economic crisis, governments are providing the necessary monetary and fiscal stimuli to boost recovery in employment and spending.
The curse of the virus on some sectors has also turned out to be a blessing for others. Just look at how much PC makers, internet companies and the broader tech industry have gained. Innovation, often necessitated by circumstances, is accelerating, and so is adoption.
As such, there are plenty of investment opportunities around and there should be no question that stock investment is not only desired, but essential. “A period of structurally low interest rates is upon us. When rates are held below normal levels for extended periods of time, the value of cash and many fixed-income investments is diminished,” says Citi Private Bank.
Since late last year, markets around the world have made significant gains. The US markets, for one, are hitting new highs even as US politics under Trump plumbed new lows. However, there are concerns that for certain sectors like tech, valuations have become too stretched. Even the spectre of the 1999 dotcom boom and bust has been muttered by some.
“The difficulty with identifying stock market bubbles is that they are only known after the fact,” says Stuart Rumble, multi-asset investment director at Fidelity International. “But there are always warning signs and, after an almost 75% rally since the sell-off last year, there is an increasing number of them grabbing headlines today,” he adds.
Rumble observes that, for now, the irrational exuberance of investors appears confined to a few specific areas and is not yet widespread enough to cause major concern. While Fidelity multi-asset team’s cover view remains positive on equities, Rumble acknowledges there is growing speculation that the end of the bull market is near.
According to him, a defining feature of the current bull market is the share of retail investor participation. Without specifying stocks such as GameStop and AMC, he notes that prices of some of these companies have been “majorly pumped up” and “seemingly beyond any rational assessment” of fundamental fair value. As for institutional investors, they are still keeping a significant portion of their holdings in cash, instead of putting all their funds into the market. “Is this a useful sign of widespread investor euphoria? Probably not,” he says.
Beyond the STI
With this as the backdrop, there is always room for active management and careful stock-picking — as asset managers like to say — but with the fundamentals of finance and investing principles as the cornerstone.
And that is what the team at The Edge Singapore has been trying to do. As an annual tradition for the Lunar New Year, we have shortlisted 10 Singapore stocks that we like. More recently, we have distilled another list of 10 global stocks that investors might want to look at. We are a Singapore-based publication but we feel that a separate portfolio of non-Singapore stocks is desirable, given the global view many Singapore-based investors have.
In 2020, we created the first global stock portfolio and it was a great year for us in terms of investment recommendations. We beat the market by a considerable margin, with 98.1% average returns for our top 10 global stock picks over a one-year holding period.
This year, we have added a few elements to our stock picks to make it more practical and actionable for the average investor. Instead of fixing a one-year period for our stock picks, we will add, reduce, buy, sell, or hold stocks based on our view of the company and general market conditions. To make things more organised and transparent, we will have a trackable virtual portfolio for our stock picks, which will enable our readers to reallocate their portfolios if they wish to mirror our stock picks and portfolio.
The performance of this portfolio will be based on the portfolio’s value at the start date, similar to the performance-tracking measure of a real fund. This virtual portfolio will be an extension from and based on our 2020 stock picks, where the start date would be the day our stock picks were published — Jan 24, 2020. Our virtual fund will start with $100,000, plus the returns made from our 2020 stock picks, which adds up to $198,075*.
To simplify things, we will buy the 2021 stock picks the day this issue is published, which is Feb 18. We will allocate the 10 stock picks for 2021 with equal weighting initially, if possible. Subsequently, we will reallocate the portfolio based on our discretion. We will, of course, articulate our rationale every time we tweak the portfolio’s holdings. On the same breath of simplifying things for our virtual portfolio, we will not account for transaction costs and exchange rate fluctuations in tracking the performance of our portfolio. Dividends received will also be deducted off the initial cost of investment for the stock.
Table 1 illustrates the presentation of the virtual portfolio with our stock picks using the closing prices from Feb 5.
Stock Picks for 2021
This year will feature 10 stocks initially for our portfolio. We are keeping some stocks from our top 10 last year, as we believe these stocks have yet to fully realise their values or have more potential for further share price growth. Our portfolio consists of dividend-paying stocks, growth stocks, value-investing stocks, turnaround stocks and high-yield stocks.
Happy investing!
*Rounded off to the nearest dollar
