Saturday, 4 May 2024

Fed leaves rate unchanged, what it means to us as investors

The most recent inflation data in the US exceeded last year's figures, aligning with market expectations that the May FOMC meeting would not announce a rate cut. As anticipated, the Federal Reserve Chair refrained from lowering rates and notably indicated that a rate hike is unlikely.

Given this insight from the Fed Chair, let's examine historical instances of rate hikes and their impact on the S&P 500 index when rates remained steady versus when rate cuts were eventually implemented.

Below is the chart from Forbes, 

In the chart, the historical rate hike cycles are depicted alongside the performance of the S&P 500 index during various periods when the Federal Reserve paused its rate hikes. It is observed that the S&P 500 exhibited predominantly positive returns during these pause periods before a rate cut.

Then the next question to ask, is the S&P500 now expensive? Below is the chart from gurufocus on the Shiller PE ratio of the S&P500.
As depicted in the chart, the S&P 500 has corrected to a level within one standard deviation (1SD). At this juncture, it is clear that the market is not offering cheap valuations.
Nevertheless, the market is unpredictable, echoing the sentiments of the late John Bogle, who emphasized the importance of staying the course in investing and adhering to a sound asset allocation strategy.
  

Wednesday, 1 May 2024

Should you invest in this fund that gives you 5% yield?

This ETF is targeting to be listed on 13May 2024, and the name of the ETF is 'LION-OCBC SECURITIES APAC FINANCIALS DIVIDEND PLUS ETF'. As indicated in the website, the ETF will be paying 5% dividend yield for the first 2 years. What will I be doing?

Let's look at what I like about this ETF:

  1. Well known brand with LION-OCBC, and top financial institutions.
  2. Decent 5% dividend yield for first 2 years, and if it can continue.
  3. Predictable payout with quarterly distribution.
  4. Diversify (almost equal weightage) across major economic countries such as Singapore, Japan, Australia, Korea, Hong Kong, Malaysia, etc.
  5. Exposure to market (japan, korea, Australia) which is difficult to access for retail investors.
Now, what I dont like about this ETF:
  1. Concentration in only Financial sector in these markets.
  2. Most of the counters in the ETF are trading close to or at all time high.
  3. How will the Fed rate cut affect this ETF.
  4. Underlying index is paying a dividend yield of 5.91%.
  5. From the ETF website it stated as a disclaimer that the distributions are not guaranteed.
For those who are happy with the 5% dividend yield, this is not a bad choice to have exposure to these markets.
For those who wants a little more and can wait, given that the underlying index has a past dividend yield range of 4.2% to 5.91%, maybe more attractive to enter when the yield is more than 5.5%.

Please do your own due diligence, this is not an investment advice.