With the market still stuck in a lacklustre mode, two of our portfolios have outperformed the benchmark FBMKLCI by 88bps-161bps  on a YTD basis. The Growth portfolio registered a 0.7% total return against the loss of 0.9% for the FBMKLCI. The other two portfolios, namely Dividend Yield and Thematic, posted YTD unrealised losses of 0.1% and 1.1%, respectively, with the former still ahead of the FBM KLCI. The three portfolios were dragged down by the loss in the Alpha stock chosen i.e. REDTONE-LA. This week, we expect  the market to continue to trade sideways as profit-taking activities are expected to continue. We are making no changes to our portfolios as we believe our stock selections still fit well with the respective portfolio investment themes to achieve their targeted returns. 

Profit taking to continue this week. The FBMKLCI fell another 0.3% WoW to close the week at 1676.44, bringing the YTD loss to 1.0% as investors continued to unlock their earlier gains in Telcos while a string of negative news sent plantation stocks lower. However, this was mitigated by gains in TENAGA and UEMLAND. Elsewhere in the US, the market was fuelled by positive economic data and better-than-expected earnings reports. Looking into this week, we expect the market to continue to trade sideways due to a lack of catalysts amidst the GE13 drawing closer. The announcement of the Dec CPI this mid-week will be the key economic data to watch where we expect it to post a lower YoY growth of 1.4%, bringing the full year 2012 CPI growth to 1.7%. TENAGA is expected to report its 1Q13 results this Wednesday night, where we expect a slight improvement in its earnings as compared to 4Q12 as its fuel costs are likely to stay flat.

Growth Portfolio was the best performer. The previous week's best performer, the Thematic portfolio came in last for the current week with a RM785 unrealised loss for the YTD or a -1.1% total return registered as of last Friday as the weak market sentiment did not fare well with the portfolio theme. This also explained why the Growth Portfolio (+0.7% YTD) was able to outperform the benchmark index as investors may be looking more for a balance portfolio to ride out a weak market. On the other hand, continued profit-taking activities in telco stocks like TM, which lost 3.7% WoW, pulled down the Dividend Yield Portfolio by 5.7%, resulting in the overall performance of this income portfolio to be down by 0.1% YTD or with an unrealised loss of RM36. Our new purchase last Tuesday (15 Jan), REDTONE-LA lost RM0.005 or 2.9% WoW to close at RM0.17 from our purchase price of RM0.175. This brought down all the three portfolio performances especially that of the Thematic portfolio as the stock made up 10% of the total invested fund in that portfolio.

UOADEV led the gain.The top three stock performers (in terms of percentage gains in the share price) under our portfolios were: 1) UOADEV, 2) TOMYPAK and 3) GAMUDA. UOADEV extended its gain last week by 5.8% WoW or with a total YTD gain of 8.1% in our Dividend Yield portfolio while TOMYPAK added 3.2% WoW to our Growth portfolio from its flat performance earlier. Meanwhile, GAMUDA contributed 1.6% WoW (as well as for the YTD) each to the Growth and Thematic portfolios. Even with their outperformance, we still like these stocks and continue to hold them in our model portfolios. TM and REDTONE-LA were the two worst stock performers last week. TM pulled down both the Dividend Yield and Thematic portfolios by 3.7% WoW and 5.7% YTD each

while REDTONE-LA contributed a 2.9% YTD lost each for all three portfolios.

Alpha generated stock. Although REDTONE-LA was the culprit last week, we still believe in its turnaround story. The stock has experienced a strong technical breakout last week which we believe was mainly led by the positive development  on its 10-year NSA agreement inked with MAXIS last July to fast-track their 4G LTE roll out. To ride on the company's future prospect, we have decided to invest in REDTONE-LA instead of the underlying share given that the former provides a better upside and interest. REDTONE-LA is a 10-year 2.75% (payable annually in arrears in March each year) ICULS and can be converted into ordinary shares of RM0.10 each at any time from 4 March 2010 to the maturity date of 4 March 2020 at the rate of 10 ICULS for 4 ordinary shares. REDTONE's share price closed at RM0.445 while REDTONE-LA ended at RM0.175 on last Monday. This provided a small arbitrage opportunity given that an investor could buy 10,000 REDTONE-LA @ 0.175 each and subsequently convert them to 4,000 ordinary shares. On top of that, REDTONE-LA also offers a 2.75% interest due to in March 2013 that could provide some buffers to its share price. We have classified REDTONE-LA as our Alpha-generated stock and allocated 10.0%, 7.0% and 4.9% of the funds in Thematic, Growth and Dividend Yield portfolios respectively to invest in the loan stock. Our immediate price target for REDTONE-LA is set at RM0.20 while the cut loss level is at RM0.165.  

Source: Kenanga