We are introducing three new sets of model portfolios for 2016 under the “On Our Portfolio” series after recording three consecutive fruitful years since 2013. The themes of these portfolios remain unchanged as THEMATIC, DIVIDEND YIELD and GROWTH with the same investment criteria as for the previous portfolios. For a start, we have the portfolios with funds less than 50% invested in view of imminent healthy pull back. All these portfolios will be reviewed on a monthly basis. Our invested stocks partly mirrored our upcoming 1Q16 Strategy Outlook which we believe the market to remain in a range-bound mode. “Be Selective” and more trading oriented investment strategy will likely to be the preferred strategy for 1Q16.

Another range trading quarter ahead. The local equity is expected to continue stucking sideways and range-bound mode in 1Q16 in light of (i) its rich valuations, (ii) lack of rerating catalysts as well as (iii) potential continual foreign outflow as a result of weak RM. Nevertheless, the fresh capital injection by ValueCap and warmer Chinese & Malaysia's relationship (which provides both direct and portfolio investments) could provide the much-needed liquidity and help boosting sovereign rating. As a result, “be Selective’ and more trading-oriented are likely to be the preferred investment strategy in 1Q16 with an ideal “Buy On Weakness” (B.O.W.) at 1,640/1,605 level and “Sell On Strength” (S.O.S.) at 1,695/1,715 level. Investors should focus on those names who fall under the following themes/sectors such as (i) non-bank money lenders, (ii) consumer F&B and retailer (due to increase hand-outs by the government to a lower-income group); (iii) manufacturers who are in expansion mode (including Gloves, Plastic Packaging, Semicon, etc.) and (iv) export oriented sectors/stocks.

Imminent pull-back. We expect healthy profit-taking activity to take place following the recent strong performance in the market. The global equity market has performed relatively stable in December despite of the first interest rate hike by US Fed (closes to a decade) and pledged a gradual pace of increases. The Financial Times’ poll from 51 top economists on how fast they think Janet Yellen would raise rates in the next two years suggesting that the Fed is likely to lift rates by 75 bps in 2016 and a further 100 bps in 2017. Despite further rate hikes ahead, the latest decision made by US Fed has clearly removed one of the biggest external uncertainties from the market. Besides, the typical yearend window dressing activities have also led the FBMKLCI to soar by 29.0 points (or 1.7%) over the last two-week of December and closed at 1,692.51 points in the last trading day of 2015 as well as bringing the total return to -3.4% for that year. The top three index-linked outperformers for a year 2015 were PCHEM (+33.4%), IHH (+36.5%) and MISC (+29.8%) while the underperformers were CIMB (-18.4%), SIME (-15.7%) and MAYBANK (-8.4%).

New year new portfolios. To recap, we had closed all the three model portfolios on 4th Dec-15 with another handsome gain of 3%-30% visa- vis the total returns of -2.2% of FBMKLCI over the same duration, which also marked a third consecutive year of outperformance. As we are moving into the year 2016, we are launching another three new sets of model portfolios with an unchanged theme and criteria in comparison to the previous 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 35%-59% of the RM100,000 allocation to each portfolio for a start but will only be reviewed on a monthly basis vs. a weekly review manner that adopted over the past three-year. Despite being less aggressive in reviewing our performance, we will continue to issue a separate report to update our followers if there are any changes in our portfolios during the month.

Invest half of the portfolios' allocation for now. As we are anticipating a healthy pull-back, we have merely less than half of our fund allocation for now with TENAGA (solid and resilient earnings) being the sole counter that includes in all the portfolios. For the aggressive portfolio, we have another two mid-caps, namely TOPGLOV and PESTECH in THEMATIC Portfolio. Similarly, BJTOTO is the other midcaps names in the conservative DIVIDEND YIELD Portfolio. The balance fund - GROWTH Portfolio, meanwhile, has three mid/small-caps stocks, namely PESTECH, TOPGLOV and TEXCYCLE, on top of the blue-chips' selection. We will further expand the portfolios progressively if our anticipation comes through.

Source: Kenanga Research - 4 Jan 2016