Can we stop talking about T-bills now?

[SINGAPORE] I was slightly aghast when a colleague at The Business Times recently confided that her investment portfolio consisted entirely of Treasury bills (T-bills).

The government-backed, fixed-income instrument is seen as a safe investment. It carries little to no default risk while offering stable returns.

But surely this colleague – only in her 30s – is far too young to be so risk-averse.

This column previously argued in February, as cut-off yields of the one-year and six-month T-bills went on the decline, that retail investors should look elsewhere in the hunt for yield.

Since then, the cut-off yields for T-bills have fallen significantly further.

The cut-off yield on Singapore’s latest six-month T-bill was at 1.38 per cent per annum, based on auction results released by the Monetary Authority of Singapore (MAS) on Sep 11, down from 3.04 per cent in the auction on Jan 28.

Meanwhile, the cut-off yield for the latest one-year T-bill in the auction results announced on Jul 24 fell to 1.68 per cent, significantly lower than the 2.95 per cent seen six months earlier in the Jan 23 auction.

The results of the next six-month and one-year T-bill auctions will be announced on Sep 25 and Oct 15, respectively. Undoubtedly, they will still see fair demand.

But retail investors would be wise to balance their portfolios.

Equities boom

While T-bill yields have been falling, the Singapore equities market has been on a tear.

From Feb 13, when my previous commentary on T-bills was first published, Singapore’s benchmark Straits Times Index (STI) has risen 11 per cent to close at 4,302.67 on Tuesday (Sep 23).

If you had invested in the blue-chip index then, you would have generated total returns – with dividends reinvested – of 15.7 per cent.

But market watchers are bullish that there is still more room for Singapore stocks to grow. JP Morgan, for instance, believes the STI could potentially hit a height of 6,000 points over the next 12 months in a bull case scenario.

The Singapore government has shown a “clear commitment” to enhance value creation for shareholders and improve market activity, JP Morgan analysts Khoi Vu and Rajiv Batra said in a report on Sep 21.

“Although we believe this transformation will require time, the anticipated reforms hold out the promise of narrowing the Singapore market’s valuation gap compared to regional counterparts,” they added.

Over the same period, the Singapore real estate investment trusts (S-Reits) would have raked in a total return of 14.2 per cent.

For too long, the Singapore market has been seen as “boring”; market participants often joke that there is little to invest in apart from the banks, blue-chips and Reits.

But the ongoing equity market review spearheaded by MAS has offered a glimmer of hope. And you can almost taste the optimism in the air.

The latest in the series of initiatives is a pair of indices – dubbed the “Next 50” – to track the 50 largest and most liquid companies beyond the STI blue-chip counters.

Constituents of the iEdge Singapore Next 50 Index and iEdge Singapore Next 50 Liquidity Weighted Index must fulfil certain criteria to be included, including a free-float threshold of 15 per cent, market capitalisation of at least S$100 million, and median daily turnover of S$100,000.

Some of the top names in the iEdge Singapore Next 50 Indices include ComfortDelGro Corporation, Yangzijiang Financial, CapitaLand Ascott Trust and Keppel Reit.

According to the Singapore Exchange, the indices have indicative 12-month dividend yields of around 5.44 per cent and 5.85 per cent.

Year-to-date, total returns from the “Next 50” companies have outperformed the STI, at over 24 per cent versus the benchmark index’s 18.5 per cent.

In fact, some of the best performers in the Singapore market so far this year have been the small and mid-caps.

For example, CNMC Goldmine has generated a year-to-date total return of 341 per cent on the back of the global gold rush, while Soilbuild Construction Group has returned 291.5 per cent.

“Where do I put my money now?” the aforementioned colleague asked.

The good news is there are a number of quality companies to be found in various sub-sectors and across market cap sizes.

Indeed, there is a buzz about the equities markets. And now is the best time – for all market participants, from regulators and companies to investors – to ride this wave, and make SGX great again.