US 10-year Yields

Posted on | by Todd | Leave a Comment on US 10-year Yields

The Dow Jones 30 posted it’s 7th straight lower close for the first time since 1978.

As a result, the US 10-year bond yields fell to a 1-month low of 2.38%. An increase in equity market volatility could could lead to another 10 to 15 basis points of downside on the yield.

Some of the local names that have moved higher on the lower yields have been SYD, TCL, WFD  and, to a lesser degree, TLS.

It’s likely interest rate stabilization will work as a near-term cap on these companies and allow for a covered call strategy to enhance the portfolio returns

REIT holdings – How we achieve 10 – 12% cash flow.

Posted on | by Leon Hinde | Leave a Comment on REIT holdings – How we achieve 10 – 12% cash flow.

The lesson from the GFC when it comes to REITS is to own the best-in-class and ensure gearing levels are moderate. 20 to 35% gearing is okay, 45 -50% gearing is the range that caused problems 10 years ago.

We like WFD combined with a tight covered call option which is delivering 10 – 12% cash flow on an annualised  basis.

Chart – Westfield

 

 

Update on the Yield Trade

Posted on | by Leon Hinde | Leave a Comment on Update on the Yield Trade

In late 2016 we began highlighting yield names which were oversold and were likely to bounce back coming into the year end. Our preferred names in the yield basket were WFD, SCG, GPT, SYD and TCL. On average, these names have rallied over 10% from their November low.

The consolidation of US yields, (bond prices no longer falling & yields no longer moving higher), along with the oversold condition in our domestic yield sensitive companies, were enough to generate the rally.

From here we feel  these names will remain supported, especially if volatility picks up in the broader market during the Jan – March period. With this in mind, we continue to hold our yield basket and overlay covered calls to boost the cash flow to 10%+ on an annualised basis.

Chart – SCG
Chart – WFD
Chart – TCL
Chart – TCL
Chart – GPT
Chart – US10YR

 

 

Property Trusts & Infrastructure

Posted on | by Leon Hinde | Leave a Comment on Property Trusts & Infrastructure

The sell-off in property trusts and infrastructure names has been substantial, 15 to 20% since early September.

The REIT sector has underperformed as bond yields have rallied. The repricing has seen the dividend yield of REIT’s back above 5%.

Historically, the correlation between Australian yield names and US 10-year yields has been inverse; as US yields fall, Australian property trusts and infrastructure stocks rise.

US 10-year bond yields have risen by 79 basis points, or over 50%, since early October. We see this pace as unsustainable and expect the local yield names to trade higher as the US Treasury yields drift lower.

We continue to track WFD, GPT, SGP, SYD and TCL versus the US10 year bond yields.

wfd
Chart – Westfield

 

gpt
Chart – GPT
Chart - Stockland
Chart – Stockland
Chart - Sydney Airports
Chart – Sydney Airports
Chart - Transurban
Chart – Transurban
US 10YR Yield
US 10YR Yield

 

 

 

 

Yield Names Remain Under Pressure

Posted on | by Leon Hinde | Leave a Comment on Yield Names Remain Under Pressure

Yield sensitive names remain under pressure as the bond sell-off in the US continues. As bond prices trade lower, the yield is increasing. Higher yields, make interest rate sensitive names like infrastructure and property trusts less appealing.

The sell-off in domestic names such as APA, GMG, GPT, SGP, TLS, TCL, SYD, WFD & SCG has been significant. With many of these names now trading on yields within 4.5 to 6.5% range.

There’s a case to be made for the above stocks to find support as the outlook for interest rates begin to stabilise.

10yr
Chart – US10yr bond yield

The Yield Basket We’ve Been Tracking

Posted on | by Leon Hinde | Leave a Comment on The Yield Basket We’ve Been Tracking

Over the last two months, bond markets have been repricing the probability of a US rate increase. During that time, we’ve watched the US10YR yields trade up from 1.3% to 1.9% . As a consequence, money managers have sold-off defensive yield names. This has been most evident in ASX 50 names within the infrastructure and property sectors.

We maintain a positive interest in these names as the current share prices now have many of the yields offering 100 basis points, (or 1%), more than they were trading at 2 months ago.

WFD and GMG are now trading back on 4% yield, whereas TCL, SYD, GPT and SCG are on average trading near 5% yield.

The December FOMC rate decision meeting will likely be the catalyst for a  bounce, however, we’re not expecting these names to recapture the recent highs. Therefore, we’ll look to sell the rally into the early part of 2017. The algorithm engine will track these names and I’ll be certain to alert you to the next lower structural high, but for the time being, you may want to position around the short term bounce which could offer up to a 10% rally.

Chart - GMG
Chart – GMG
gpt
Chart – GPT
scg
Chart – SCG
sgp
Chart – SGP

 

wfd
Chart – WFD

 

Chart - TCL
Chart – TCL
Chart - SYD
Chart – SYD

Property Exposure – Are You Watching?

Posted on | by Leon Hinde | Leave a Comment on Property Exposure – Are You Watching?

The recent market rotation towards growth assets and in particular, materials and financials, has resulted in selling utilities and property trusts. In many cases, these names have seen 10 to 20% correction.

The following post takes a quick look at some of the relevant chart patterns.

SCG.ASX (forward yield 4.9%)

scg

SGP.ASX (forward yield 5.5%)

sgp

WFD.ASX (forward yield 3.5%)

wfd

DXS.ASX (forward yield 5.2%)

dxs

GMG.ASX (forward yield 3.7%)

gmg

GPT.ASX (forward yield 5%)

gpt

MGR.ASX

mgr

On the utilities, we think that both Sydney Airports and Transurban should be back on the radar and maybe looking oversold.

SYD.ASX (forward yield 5%)

syd

TCL.ASX (forward yield 4.8%)

tcl

 

 

 

 

 

 

 

 

 

Property Trust – Watch List Opportunities Update

Posted on | by Leon Hinde | Leave a Comment on Property Trust – Watch List Opportunities Update

On the 2nd of September, we made a blog post highlighting a group of stocks to place on your watch list. Among these were a number of property trusts and their indicated buy zones. Since then, as anticipated, we’ve seen bond yields move higher and selling in defensive yield names continue. We’re now at a point where a number of the names on our preferred watch list are in the “go zone”.

This post revisits the property trust names, however, there’re other sectors too that are now showing multiple buy-side signals from our algorithm engines.

Westfield (WFD.ASX)

wfd

GPT Group (GPT.ASX)

gpt

Scentre Group (SCG.ASX)

scg

Stockland Group (SGP.ASX)

sgp

Goodman Group (GMG.ASX)

gmg

Buying Opportunities – add these to your watch list

Posted on | by Leon Hinde | Leave a Comment on Buying Opportunities – add these to your watch list

Today’s report is a summary of what I’m watching following some of the recent price action in the market. On the 30th of August I wrote a blog post under the heading “Property Trusts” and the commentary there still remains relevant. If the Fed Reserve doesn’t raise rates in 2016, we’ll see the yield names rally 5% to 10%. With this in mind, WFD, GPT, SCG are worth keeping on your watch list. AGL, TCL, BXB, IAG, SUN and BLD have also been triggered by the algorithm engine as buying opportunities that should be tracked for an appropriate entry point.

Other names that we’re waiting for a buy signal on include JHX, SGR, QUB, RMD, TWE, SHL, CWN, AMP and NVT. Out of this group, QUB and CWN are the closest to the entry condition being triggered.

 

Property Trust – Buy Signals

Posted on | by Leon Hinde | Leave a Comment on Property Trust – Buy Signals

There’s no denying that PE’s on the property trusts look stretched and we are likely facing a period of price consolidation. Earnings growth is attractive but yields have compressed too far. In some cases, yields on property trusts of barely 3% offer investors little risk reward. However, if you feel the US will not raise rates in September, you may share my view that we could see another bounce, (approximately 5%), yet to play out.

WFD, GPT and SCG are all on my radar as buy signals. I think we get a small bounce from here and it will then pay to sell tight covered calls to double the cash flow over the next 6 months, whilst still remaining exposed to the next round of dividends.

Feel free to contact me leon@investorsignals.com to discuss how we can help set up these strategies and others on your investment portfolio.