2023 was a relatively good year for stock markets globally, with most stock markets recording positive gains and only a few losses. The year was marked by easing concerns over the pandemic and an outlook for more favourable interest rates for the stock market. Stock markets globally recovered much of their losses suffered in 2022, except for a few, including China. Chinese stocks continue to be subject to investor pessimism, stemming from fear of government-related policies contributing to increased investor risk. Conversely, US-related stocks continue to reach all-time highs due to more favourable interest rates.
We at The Edge Singapore believe in value investing for our global portfolio. Specifically, we believe in buying undervalued stocks and selling overvalued ones. More often than not, markets provide investors with opportunities to buy and sell stocks based on their intrinsic value, as prices of stocks are likely to be distorted by macroeconomic factors such as market shocks. Stocks may rise significantly due to irrational optimism or fall unnecessarily due to overwhelming fear. The goal is to identify temporarily misvalued stocks and act upon them. Investors should note that this is not analogous to timing the market as that mainly concerns short-term, methodical trading. Value investing denotes that the time is always right to buy undervalued stocks, but care must be given to identifying the risk and return profile of individual investors. Not all asset classes are appropriate for all investors; similarly, not all stocks are appropriate for all investors.
The Edge Singapore’s virtual portfolio of 10 stocks was incepted on Jan 24, 2020, with a minimum yearly update and 10 stocks. Based on our discretion, these initial 10 stocks were equally allocated to a US$100,000 virtual portfolio to reflect the various archetypes of investor risk and return profiles. Our yearly portfolio returns for 2020, 2021 and 2022 were 98.1%, 13.1% and –9.8%, respectively. The 10 stocks for our 2023 portfolio were added on Jan 30, 2023, and sold on Feb 16, 2024.
The Edge Singapore’s 2023 global portfolio of 10 stocks returned 25.8%. Chart 1 shows the performance of individual stocks for the virtual portfolio. The top performer was CrowdStrike Holdings with 224.8% returns, while the worst was JD Logistics with –54.7% returns.
The absolute performance for our 2023 portfolio was particularly good, though its relative performance was not the best. Chart 2 illustrates the portfolio’s performance relative to the major indices of countries in which we have acquired stocks. Our portfolio was only outperformed by the Nikkei 225, Nasdaq and the S&P 500, which recorded returns of 43.4%, 39.8% and 26.7%, respectively. The Straits Times Index (STI) was one of the weakest performers for the period, with a 0.5% return, only outperforming two other indices. The two worst-performing indices were the Shanghai Composite and the Hang Seng, which recorded returns of –9.9% and –23.1% respectively.
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The Edge Singapore’s global virtual portfolio is still significantly ahead of any other benchmark since its inception, from Jan 24, 2020, to Feb 16, 2024, as shown in Chart 3. Our four-year performance translates to a 25.7% CAGR, almost matching our strong performance for 2023. It is to be noted that all our returns calculated exclude transaction costs and exchange rate movements and that our portfolio is virtual.
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One of the key lessons and takeaways from our stock picks and portfolio last year is that just because the portfolio is diversified globally, it does not mean that there is a minimum expected return. Diversifying into underperforming markets makes it a lot harder to pick stocks that can relatively outperform and positively add to the portfolio’s returns. In other words, picking safer stocks in an underperforming market and riskier stocks in an outperforming market would be the appropriate strategy, and investors should give just as much importance to investing in the right markets relative to investing in the right stocks.
Hong Kong-listed JD Logistics was our worst performer in the 2023 portfolio, with a –54.7% return. The stock severely underperformed both the Shanghai Composite and Hang Seng benchmarks. JD Logistics is China’s leading technology-driven supply chain solutions and logistics services provider. Although the company’s results were fairly decent, it was significantly affected by the general market and a bleak macroeconomic outlook, which resulted in multiple analyst target price cuts. However, the stock appears undervalued for most analysts, with an average target price of over 70% above its current trading price and no “sell” call.
Hong Kong-listed Sunny Optical Technology Group was our other Chinese stock in the 2023 portfolio that severely underperformed both the Shanghai Composite and Hang Seng with –53.5% returns. Sunny Optical is a leading global integrated optical components and products manufacturer. The company’s relatively poor results contributed negatively to its share price performance, which was only made worse by the general market sentiment on Chinese stocks. However, most analysts think the worst has passed for Sunny Optical and it is soon poised for recovery, with an average target price of around 60% above its current trading price and no “sell” call.
Korea-listed NCSoft Corp was one of the weakest performers in the 2023 portfolio, with a –53.3% return, severely underperforming the Korean Kospi benchmark. NCSoft is a leading online games company with a global presence. The company’s results were underwhelming, and coupled with multiple headwinds, such as intensifying competition in the online games space, the share price continues to decline. Analysts also appear not too keen on the stock, with multiple “hold” and “sell” calls and an average target price of approximately the currently-trading share price.
Paris-listed Teleperformance SE was also on the list of severe underperformers in the 2023 portfolio with a –45.8% return and performed poorly against the MSCI Europe benchmark. Teleperformance is a company that offers customer relationship management services as part of the overall business process outsourcing industry. The company’s results were fairly decent, but the acquisition of its rival for a premium, along with other M&A, weighed on its share price performance. Most analysts are positive on the stock, with only one “sell” call and an average target price of 40% above its current trading price.
London-listed Globalworth Real Estate Investments was the smallest underperformer in the 2023 portfolio with a –2.6% return, underperforming the FTSE 100 and MSCI Europe benchmarks. Globalworth is a real estate company that acquires, develops and manages commercial real estate assets, mainly in the Central and Eastern European office sector. Although the company’s results aligned with expectations, it was slightly affected by the Russia-Ukraine conflict. Due to its smaller size, there is very little analyst coverage, but it is overwhelmingly positive with “buy” calls.
New York-listed Avantor Inc was the smallest positive performer in the 2023 portfolio with a 1.0% return. The stock underperformed the Dow Jones and S&P 500 benchmarks, although it recorded positive returns. Avantor is a global provider of mission-critical products and services to customers in the biopharma, healthcare, education and government, and advanced technologies and applied materials industries. The company’s results were much better than expected without its Covid-related business, which quickly reversed the losses on its share price. Analysts are optimistic about the stock, with an average target price of around 15% above its current price with no “sell” call.
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New York-listed The Walt Disney Co was among the smaller positive performers in the 2023 portfolio with a 4.1% return. The company still underperformed the Dow Jones and S&P 500 benchmarks despite recording positive returns. Disney is a diversified worldwide entertainment company. The company’s stronger-than-expected results reversed its previous share-price losses due to non-optimistic projections on its business segments. The stock appears to be fairly valued among most analysts, with an average target price of approximately what the share price is currently trading at and only one “sell” call.
ASX-listed Aristocrat Leisure was one of the outperformers in our 2023 portfolio with a strong 33.6% return. The company outperformed the ASX 200 by a decent margin. Aristocrat is a leading global gaming content, technology company and mobile games publisher. The company’s strong performance and cash-flow profits, along with a positive outlook, contributed to its share price gains. Analysts still think the company is slightly undervalued, with an average target price of around 5% above its current price with only one “sell” call.
Tokyo-listed Denso Corp was one of the better performers in the 2023 portfolio with a 40.7% return. Denso is a global automotive components manufacturer and is one of the largest auto parts suppliers in the world. We realised gains on the company halfway through the year as the company was the first to reach its intrinsic value target. Should we have held it till the end of the period, Denso would have returned 56.9%. These significant gains were also partly driven by the strong performance of the general Japanese stock market.
New York-listed Uber Technologies was one of the two strongest outperformers in our 2023 portfolio with a whopping 164.6% return. Uber provides ride-hailing services and develops applications for road transportation, navigation, ride-sharing and payment processing solutions worldwide. The strong outperformance of the company’s share price is attributed to its continued positive results, its inclusion in the S&P 500 index and its announced share buyback programme. Despite Uber more than doubling its share price from last year, analysts are still optimistic about the stock with an average target price of around 10% above its current price with no “sell” call.
Finally, Nasdaq-listed CrowdStrike Holdings was our top performer in the 2023 portfolio with a massive 224.8% return. CrowdStrike is a leader in the cloud security space which provides endpoint security, threat intelligence, workload protection and cyber-attack response services. The company performed exceptionally well every financial reporting period with record cash flows, and along with a more favourable interest rate outlook, the share price of the company continued to soar. Less than 10% of analysts think that the stock is fairly valued or overvalued, with an average target price of around 5% below what it is currently trading at.
We also would like to reiterate that investors should have the mettle and discipline to buy and sell stocks if they no longer align with the investor’s profile. Based on our value investing strategy, this is pretty straightforward — once the undervalued stock reaches its intrinsic value or target price, a re-evaluation of the stock would be necessary to determine whether it is still undervalued. Also, important company events such as its results announcement would necessitate a review of the company. A general rule would be to monitor riskier stocks in the portfolio more closely and frequently compared to others.
Continue to read this issue as we unveil our top 10 global stock picks for the Year of the Dragon.
Disclaimer: This is a virtual portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This portfolio does not take into account the investor’s financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor’s own discretion and/ or after consulting licensed investment professionals, at their own risk.
