We are introducing three new sets of model portfolios for 2014 under the “On Our Portfolio” series after a fruitful year in 2013. The themes of these portfolios remain as THEMATIC, DIVIDEND YIELD and GROWTH with the same investment criteria as for the previous portfolios in 2013. The THEMATIC Portfolio is designed for aggressive investors who are looking for at least a 10% total return a year while the DIVIDEND YIELD Portfolio is suitable for conservative investors who prefer income stocks with minimum 4% annual yield. On the other hand, the GROWTH Portfolio provides a balance between the aggressive and conservative risk classes. For a start, we have the portfolios with funds 61%-65% invested and they will be reviewed on the usual weekly basis. Our invested stocks partly mirrored our 2014 Strategy Outlook which was released last Friday where we expect the equity market to do well in 1H14 but face a challenging outlook in 2H14. As such, any pullback below 1,825 may provide excellent “Buy On Weakness” opportunities.

A year of two halves? We had released our 2014 Investment Strategy last Friday with a year end-2014 FBMKLCI target of 1,890, implying 17.5x FY14 PER. Together with c3% dividend yield, the local equity market offers c.4% total return from this point. We believe 1H14 is likely to be positive on the bullish trending momentum which could spill over 1H14 with interest rates for both Malaysia and the U.S. seen remaining unchanged. As such, any pullback below 1,825 may provide excellent “Buy On Weakness” opportunities to accumulate stocks. Having said that, 2H14 is likely to be challenging prior to the implementation of GST and a certain degree of capital outflow in anticipation for higher U.S. interest rate in 2015. Thus, “Sell On Strength” could be the right strategy to adopt in 2H14 when the key index hit above 1,960.

The year starts with profit taking activities. As 2013 came to an end, the local market enjoyed a good run, hitting fresh new highs, albeit accompanied by lacklustre volume thanks to year-end window dressing but came off on new year’s eve as profit-taking activities kicked in. The lacklustre performance of FBMKLCI continued in the first two trading days of 2014 with the key index losing 26.32pts or 1.41% WoW to end at 1,834.74 last Friday. Although trading volumes were low, foreign fund remained as net buyers for a straight-4-day before turning net seller last Friday. The main index-linked underperformers last week were TENAGA (-5.17% WoW), SKPETRO (-7.49%) and GENTING (-2.70%). On Wall Street, both Dow Jones and S&P 500 enjoyed new record highs on the new year’s eve before profit-taking activities started to emerge in the first trading day of 2014.

New year new portfolios. To recap, we had closed all the three model portfolios on 27 Dec-13 with handsome gains of 21%-34% compared to the total returns of 14% for FBMKLCI for the same duration. Today, we are launching three new sets of model portfolios with the same themes and criteria of the old model portfolios. The THEMATIC Portfolio is designed for aggressive investors who are looking for at least a 10% total return a year while the DIVIDEND YIELD Portfolio is suitable for conservative investors who focus on income stocks with minimum 4% annual yield. On the other hand, The GROWTH Portfolio provides a balance between the aggressive and conservative risk classes with less than 1.0x PEG (PER over Growth) ratio. We are investing 61%-65% of the RM100,000 allocation to each portfolio for a start and they will be reviewed on a weekly basis to adjust for prevailing market conditions.

A good mix of big and small caps. We have four stocks each in these three portfolios with a good blend of big and small cap selections. For the aggressive portfolio, we have three small to mid caps, namely TSH, FIBON and REDTONE-WA in THEMATIC Portfolio with only one big cap – TENAGA. However, there are three heavyweights, including TM, BJTOTO and MAYBANK in the conservative DIVIDEND YIELD Portfolio, with one small cap i.e., FIBON. The balance fund, GROWTH Portfolio has two big caps (TENAGA and IJM) and two small caps (FIBON and REDTONE-WA). The well balanced stock selection between big and small caps in our portfolios should help us weather volatile market conditions to maximise returns.

Source: Kenanga