Introducing Our 3 New Model Portfolios

We are pleased to introduce a new retail research product - On Our Portfolio (“OP”) - to further enhance our research service to Kenanga retail investors. OP consists of three model portfolios based on the Thematic, Growth and Dividend Yield themes. They are designed to cater and maximise the returns to investors based on their own individual risk-return need and  tolerance. The Thematic portfolio for one is targeted for aggressive investors who are looking for at least a 10% total return p.a. while conservative investors will find it more suitable to model their investments on the Dividend Yield portfolio as it focuses more on yield stocks. Meanwhile, the Growth portfolio provides a balance between the two aggressive and conservative risk classes. Note that we will be using a more trading-oriented approach to manage these model portfolios as they have an inherent higher degree of volatilities since they will comprise mostly of mid-tosmall capitalisation stocks.  Partially due to this and also to reflect the current more volatile market scenario, we will be reviewing these portfolios on a weekly basis. In any case, the end objective remains the same – to provide all Kenanga retail investors with the means and tools to beat the market. Profit from it! 

Introducing three new OR model portfolios. On the overall, our 2013 stock market view remains unchanged, where we believe the market will likely trade in a range-bound mode most of the time. Hence, in our view, effective stock selection and active trading-oriented approaches will be the more appropriate strategy for retailers this year. As such, our investment strategy for the OP will be on a more trading-oriented approach. The three new OP model portfolios are based on the different types of investment themes namely thematic (aggressive), growth (balance) and dividend yield (conservative). We have allocated RM100k for each portfolio for a start with the ideal 5-8 counters for each portfolio. All the portfolios will be based on an absolute total return measurement with the aim of outperforming the 12-month fixed-deposit rate of 3.15%. 

Portfolios criteria.  For the thematic portfolio, our investment criteria are to invest in a stock which has more than 10% in potential total returns as well as the potential to be a theme-play candidate. The volatility of this portfolio is high and thus fits those investors who have higher risk appetite. The growth portfolio, meanwhile, will focus on companies that have less than a 1.0x PEG (PER over Growth) ratio with a consistence dividend payout. This portfolio caters to investors who have a moderate risk tolerance. As for the dividend yield portfolio, we will focus on investing in high dividend yield companies, which have more than a 4% indicative 12-month dividend yield.    

Risks. While we will follow the criteria stated above to construct the portfolios, we highlight that the portfolios could have a higher volatility level than normal. This is because most of the stocks being recommended are the mid-to-small capitalisation stocks and thus will have a higher volatility in general as compared to the big capitalisation stocks. As such, we recommend investors to adopt a more trading-oriented approach when following these stock recommendations. 

How does the model portfolio work? We will adopt a more active trading-oriented approach in managing our model portfolios instead of reviewing the performance based on a quarterly basis. The key rationales are to maximise the total return as well as minimise the risk given that mid-to-small capitalisation stocks generally have a higher volatility in contrast to the big capitalisation stocks. Meanwhile, to make it simple, we will use the overnight closing price (for each stock) as our entry/exit price when we make a stock recommendation and exclude the transaction costs (i.e. trade commissions and clearing fees) when we compute the portfolios' performances. Thus, investors should take into account their respective risk tolerance as well as cost structure when following our stock recommendations.  We will review our portfolios on a weekly basis in order to better reflect the current market scenario.

Source: Kenanga