3 Investment Decisions to Make Before 2022 Ends

Time has flown by quickly as 2022 also comes to a close.

It has been a roller-coaster ride for investors as markets exhibit significant volatility in the wake of inflation and rising interest rates.

The year started on a happy note but storm clouds have since gathered.

Prime Minister Lee Hsien Loong has now warned that a recession could hit our shores either next year or in 2024.

It’s not unusual for you to wonder if your portfolio is well-positioned to handle these challenges.

It’s not too late to make changes as there is still some time left before 2023 is upon us.

Here are three decisions you can undertake to fortify your portfolio against these headwinds as we step into an uncertain 2023.

Businesses with pricing power

In an era of heightened inflation, parking your money in savings accounts will almost surely erode your savings.

While it’s true that the three local banks have dangled attractive interest rates for their flagship accounts to entice savers, the fact remains that you’d need to fulfil a long list of terms and conditions to qualify for these eye-watering rates.

Inflation results in a rise in the general prices of goods and services.

But let’s think about that sentence for a moment.

Businesses are raising the prices of their goods and services to offset higher input costs, yet consumers will still need to purchase goods that they need.

Hence, it makes sense to park your money in businesses that can increase prices without suffering a corresponding fall in sales volume.

Natural monopolies come to mind, including oligopolies that function in providing an essential service.

Singapore Exchange Limited (SGX: S68) is an example of a natural monopoly as it is the only stock exchange operator in Singapore.

An example of an oligopolistic business offering an essential service is VICOM Limited (SGX: WJP).

The vehicle inspection company owns three-quarters of the market and has also managed to raise its inspection fees over the last two decades.

And let’s not forget about businesses with such strong branding that they can easily raise prices without suffering any boycott.

Apple (NASDAQ: AAPL) comes to mind as its customer base remains loyal to a fault, while coffee chain Starbucks (NASDAQ: SBUX) continues to attract customers with its foamy lattes.

Recession-resistant businesses

Another area you can look at is businesses that can withstand the onslaught of a recession.

Such businesses provide an essential service that people cannot do without even when times are bad.

Healthcare is a sector that should see steady demand even when there is a downturn.

Raffles Medical Group (SGX: BSL), with its integrated healthcare model, is well-positioned to weather a recession as it owns three hospitals in Singapore and China along with a chain of clinics in various parts of Asia.

Another example of a resilient business is retailer and supermarket operator Sheng Siong Group Ltd (SGX: OV8).

The group reported a healthy free cash flow of S$104.2 million for the first nine months of 2022 (9M2022) and also opened three new stores during that period.

These two companies have the attributes to weather harsh economic times as they boast strong brands and provide essential products and services.

Dividend-paying REITs

A third move you can consider is to shift some money into dividend-paying stocks.

Such stocks will help to provide you with a steady stream of income as you weather tough times.

REITs are a great asset class for dividends as they are mandated to pay out at least 90% of their earnings as distributions.

Keppel DC REIT (SGX: AJBU) has data centre assets that should continue to enjoy strong demand.

The data centre REIT also posted a 3.4% year-on-year in its 9M2022 distribution per unit (DPU) to S$0.07634.

The annualised DPU of S$0.101787 means units of Keppel DC REIT is offering a 5.6% forward distribution yield.

Mapletree Logistics Trust (SGX: M44U) grew its DPU by 4.2% year on year to S$0.04516 for its fiscal 2023’s first half.

The logistics REIT’s annualised DPU of S$0.09032 means its units provide a 5.6% forward distribution yield.

These yields can handily beat inflation and you also end up owning REITs with strong sponsors that have a proven ability to grow both their asset bases and DPUs over time.

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Disclaimer: Royston Yang owns shares of VICOM Limited, Singapore Exchange Limited, Raffles Medical Group, Apple, Starbucks and Keppel DC REIT.

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