As Halloween approaches, even the stock market has got in on the act. The Straits Times Index (STI), a benchmark index in Singapore, spooked investors by dipping below 3000 for the first time since January 2017.
Eventually closing at 2972.02 on 26 October 2018 (Friday), the STI has lost nearly 13.4% since the start of 2018. In fact, since the beginning of October, it has fallen close to 8.7%. This drop, and heightened volatility, has caused many investors to take a tepid approach to investing in the stock markets.
This brings us to our topic for this week – Low Beta.
Beta is a measure of the volatility of the stock compared to the rest of the market.
A stock with a beta of 1 indicates that its price moves in tandem with the benchmark.
A stock with a beta of more than 1 indicates that its price movements is more volatile than the benchmark. This means when the benchmark moves by a certain level, its price will move by more than it.
A stock with a beta of less than 1 indicates that its price movements is less volatile than the benchmark. This means when the benchmark moves by a certain level, its price will move by less than it.
This makes buying low-beta stocks a good way to diversify against market risk, or systemic risk. We should also note that beta does not help diversify against non-systemic risk, or risks that are only related to individual companies. For example, individual stocks can fall due to management issues, product issues, geographical disasters or other issues that may only affect one company.
Using StockFacts, a stock screening platform developed by the Singapore Exchange (SGX), we identified four companies with a low beta (but with a market capitalisation of over $500 million). You can use StockFacts on your own to identify other low-beta stocks, or even screen based on other factors to make your investment decisions.
#1 Delfi Limited (SGX: P34)
Delfi manufactures and distributes its own chocolate confectionary products in Indonesia, Philippines, Singapore and Malaysia. Its products are also sold in other major markets including Thailand, Brunei, India, South Korea and Vietnam. The Group also uses its distribution network to market other branded confectionaries.
Delfi has a market capitalisation of $672.3 million, and on StockFacts, its 5-year beta is listed as 0.075. This means Delfi’s price movements has a very low correlation to price fluctuations in the market. Delfi’s share price has actually dipped 22.0% since the start of the year. This is one way that we need to be careful when investing in low-beta stocks, as it also means that a stock that drops much more than the benchmark will have a low-beta as well.
#2 CapitaLand Mall Trust (SGX: C38U)
The first and still real estate investment trust (REIT) to be listed in Singapore since 2002, CapitaLand Mall Trust has a portfolio of over 2,800 leases and a market capitalisation of over $7.3 billion. Capitaland Mall Trust’s leases are from its high-quality properties in Singapore including Plaza Singaupura, Bugis Junction, Raffles City Singapore, Tampines Mall and many more.
CapitaLand Mall Trust has a beta of 0.076. To highlight its lower than market volatility, CapitaLand Mall Trust’s share price has dipped just 1.9% since the start of the year. This is compared to the almost 13.4% dip in the STI.
#3 United Overseas Australia Limited (SGX: EH5)
United Overseas Australia (UOA) is not related to other “United Overseas” stocks we may be more familiar with – such as UOB, UOL and UOI. With a market capitalisation of $955.6 million, United Overseas Australia is primarily focused on property development, construction, investment and management in Malaysia.
United Overseas Australia has a beta of 0.101. Since the start of the year, its share price has increased 6.2%. This is also another way that low-beta stocks can move – in complete opposite to the stock market in a positive way.
#4 IHH Healthcare Berhad (SGX: Q0F)
IHH is a premium healthcare provider with core operations in Malaysia, Singapore, Turkey and India. The Group is also expanding its presence in the Greater China region, Central and Eastern Europe, the Middle East and North Africa.
IHH has a market capitalisation of $13.1 billion, and a beta of 0.134. Since the start of the year, its share price has decreased 15.5%. While this is close to STI’s 13.4%, the measure available on StockFacts is the 5-year beta. In the past five years, IHH’s share price has increased 1.9%, this is compared to the -7.2% the STI has delivered in the past five years.
If you are interested to read more about Singapore stocks, you can check out our extensive archive of articles of 4 Stocks This Week. To stay up to date with the latest news on the Singapore Exchange, you also can check out the SGX My Gateway Market Updates to get more insights.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.