Dear Investors,
I’m pleased to report that the Family Fund gained +24.3% for the year with a largest monthly drawdown of -2.6% vs the market which made +18.1% and a largest month drawdown of -1.6%. The Fund outperformed by 6.2% despite taking a similar risk profile to the market.
A Successful Year
By and large, 2017 is considered a successful year aided by a strong bull market. Supportive factors like strong earnings, continued healthy economic growth, a commodities recovery and US tax cuts pushed equity markets relentlessly up. Risks related to Trump’s election, North Korea and European elections also failed to materialize.
The Tencent Effect
The Fund benefitted from stock picks that performed outstandingly well. We invested in Tencent, the maker of WeChat early in the year when it was under-appreciated for its potential. This is especially so with regards to its rapidly growing gaming ecosystem which is seeing a growth rate of >30% a year. Tencent’s unique position in distribution while building a strong content base means that it is able to reinvest cash at an strong return on capital in a large and growing market. We also invested in F&N with its strong beverage footprint in fast growing countries like Vietnam. Both returned more than 35%, contributing to outperformance in Q1’18 and remain top positions in the portfolio today.
Catching the SG Property Rally
Moreover, the Fund was quick to catch onto a budding rally in property stocks in Singapore which delivered the 2nd leg of outperformance in Q3’18.
The impact of cooling measures have taken its due toll in the last 3 years while inventory of new homes is at a record low. This means that developers have to acquire new land bank thus triggering an en-bloc fever, raising prices of both resale and future new launches. Moreover, Singapore’s housing affordability ratio is increasing due to higher incomes against a stagnant property market.
2018 should be good, but watch out for interest rate hikes
With the Fund’s good performance in 2017, I foresee the first half of 2018 to also be strong based on continued strong earnings, low interest rates and good economic growth. However, the second half of 2018 could be weaker as expectations run ahead of reality, especially on the back of a tightening Fed stance.
In light of this, the game plan is to be fully invested in 1H’18 and to watch out for 3 key warning signs:
1) Earnings disappointment in big tech firms
2) Higher trajectory of interest rate increases
3) Slowing economic growth and increases in inflation
1) Earnings disappointment in big tech firms
2) Higher trajectory of interest rate increases
3) Slowing economic growth and increases in inflation
Once again, I thank you all for your continued support and wish you and your loved ones a New Year of joy, peace and prosperity!