Where To Find Market-Beating Shares

Date: June 20, 2013

Dear Reader,

It’s been an amazing start for the Singapore stock market this year. Since 1 January, the Straits Times Index has increased around 6%. If things can carry on at this rate, we could be looking at a rise of around 20% for the Singapore benchmark index in 2013, which would be even more amazing.

For many investors a return of 6% in just four months would be considered a financial triumph. After all, if you had left your money in a savings account you would have collected next to nothing in interest.

40 of the best

But did you know that no fewer than 40 shares in the Singapore market have already risen by 20% or more this year?

Where, though, do you look for these outstanding performers given that there are hundreds of shares to choose from in the Singapore market?

Would it be better to hunt for bargains amongst the blue chips, look for opportunities over in the mid-caps or delve into the small caps for hidden gems?

This is an age-old question that has dogged many investors around the world. Some investors prefer to cocoon themselves in the comfort of the big caps. Their argument is that nothing too bad ever happens to blue-chip shares, and generally they are right.

Fleas and elephants

Others prefer to look for opportunities amongst the mid-caps. They believe that yesterday’s mid-caps can be tomorrow’s blue chips. They are right too. Then we have the adventurous investor who likes to look for bargains amongst the small caps. The argument is that elephants don’t gallop but fleas can jump many times their height.

They are all correct.

Blue chip shares, in the main, tend to be yesterday’s growth story. Their days of jaw-dropping expansion are but a faint memory. So, they tend to reward investors with income rather than share-price growth.

That said, 10 large caps out of the 30 Straits Times Index constituents have registered double-digit gains in the first four months of the year. These include the ever-popular Singapore Telecoms and the ever-reliable SIA Engineering.

Improving your strike rate

Whilst a strike rate of one in three may seem like pretty good odds, it pales in comparison to mid-caps shares where one in two has registered double-digit gains since the start of the year. Interestingly, a host of REITs figure highly as investors warms to dividend-paying shares for income in a low-interest rate environment.

The number of outstanding gainers gets even more interesting amongst the small caps, where four out of nine shares have delivered double-digit gains this year. In fact two companies have seen their share prices more than double. One just missed out on a 100% gain by a whisker.

Something for everyone

Thing is, there are investing opportunities around us everywhere. So whether you prefer the relative safety of blue chips, the growth potential of mid-caps or the excitement of small caps, there are plenty of shares in the market that cater for all our individual tastes.

At the Motley Fool we like to think of a share portfolio as a collection of companies with different attributes. That generally means buying a range of different shares with different characteristics. Typically, a portfolio might have a solid base of income shares, a tier of growth shares and some speculative shares just to whet the investing appetite.

A properly balanced portfolio should produce income in both good times and bad, deliver growth over the long term and provide just enough excitement to stop you from dropping off to sleep. Some people call it portfolio management. I just call it investing sensibly.

To your investing

David Kuo

This article is contributed by The Motley Fool Singapore