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Disruptive Innovation-Growth Investing with Phillip Global Rising Yield Innovators Fund

By August 18, 2020 No Comments

Disruptive Innovation-Growth Investing with Phillip Global Rising Yield Innovators Fund

Technological advancement has been the most powerful transformative force known to man. Since the dawn of human civilization, technologies have shaped the world and helped generations transcend boundaries and limitations.  

In today’s modern time, technology is advancing at a dizzying pace: It was only slightly more than a decade ago that the world ushered in 4G mobile technology which exponentially improved our interconnectivity online. Today, 5G mobile technology, Artificial Intelligence, MedTech and Internet-of-Things (“IoT”) have become the new buzzwords.

Emerging technologies are also catalysts to global economic growth as they spur new industries to form in parallel. However, in the process, sometimes they can become disruptive forces to traditional businesses. Consider how the viability of e-commerce has been built upon the foundation laid down by the advent of the internet in the 1990s.

As we step into a new decade of 2020, limitations of maturing technologies of yesteryears have given rise to a whole new spectrum of high-value problems. These new world problems call for innovators to create new unique solutions, and with it bring the large magnitude of meaningful economic and societal value.

Nonetheless, the rapid advancements of technology in today’s exponential world also meant that “relevancy” has become a new identifier for the economic moat. Such a paradigm calls for refinement to how investors perceive the concept of value investing.

Drawback of Pure Dividend Strategy

Observantly, the Covid-19 crisis has exposed the vulnerability of traditional business models and the old economy stocks. Businesses that continue to thrive during the Great Lockdown, anecdotally adapted by embracing the power of modern technology to reach masses. If anything, the pandemic has accelerated the adoption of technology on a global scale.

This phenomenon is further reflected by the contrasting performance between tech indices and other market indices. For example, the lack of technology stocks in the local stock market has resulted in the poor performance of the Straits Times Index (“STI”) during this downturn. On a year-to-date basis, the STI is down 19.6% as of 25 June 2020, while US major tech index – Nasdaq Composite – is up by about 11% and still trading at record territory.

Where the investors are concerned, chasing traditional businesses in a dynamic stock market with ever-changing market trends can prove to be particularly challenging. One of the major valuation proposition put forth for investing in traditional businesses is that they tend to pay out dividends. Since the global financial crisis in 2009, due to persistently low-interest rates in the marketplace, dividend stocks have gained in popularity for investors to meet income needs. However, there are dangers to chasing high-yield stocks.

More important than the appearance of high yields is the sustainability of dividends paid. Traditional businesses that have lost or are losing their relevance in a fast-changing world are potential value traps for investors. More often than not, high yield counters are a result of the precipitous fall in the corresponding share prices of the underlying companies, owing to financial distress or deteriorating fundamentals.

Source: S&P Dow Jones Indices, Phillip Capital Management (“PCM”); as of 26 June 2020

Taking a pure dividend investing strategy is also not as profitable as some investors may believe. From the table above, we compared the Technology Select Sector Index to S&P 500 High Dividend Index, over the 5-year period to 26 June 2020. For some background, the former is the representation of the technology sector of the S&P 500 while the latter is an index measuring the performance of 80 high yield companies within the S&P 500.

The results showed that over the 5-year period, the Technology Select Sector Index generated a total return of about 140.97%, compared to the S&P 500 High Dividend Index that posted a negative total return of -8.76%. Total return assumes all dividends are reinvested.

A Different Approach for Income Needs

As empirical data above has shown, a pure dividend investing strategy may not be the most ideal for long-term investments. This calls for a befitting approach: Dividend-growth investing.

As change agents, innovators or up-and-coming technology companies supersedes traditional businesses and are well-positioned to capture long-term structural growth. This characteristic also implies that although their starting-yield maybe low, innovative companies have greater potential to grow dividends sustainably over time.

Source: Microsoft Corporation (“Microsoft”); compiled by PCM; as of 17 June 2020

For an analogy, consider one of the most successful innovators in the computing space, Microsoft. At its current share price of US$196.33 (26 June 2020), its trailing-12-month dividend yield would appear low at only 1.04%. However, the appearance of Microsoft as a “low-yield” stock would be far from reality: Microsoft has grown its quarterly dividends by 537.5% from US$0.08 in FY2004 Q4 to US$0.51 in FY2020 Q4. Notwithstanding the 9 common stock splits in its history since its initial public offering (“IPO”), early investors of Microsoft would have achieved a superior yield-to-cost. For simplicity, assuming an investor bought into Microsoft at the start of 2004 at US$27.65 (closed price as at 1 January 2004), his starting yield would only be about 1.16% on an annualized basis. Fast-forward to 2020, based on its current quarterly distribution, his annualized yield-to-cost would be about 7.38%.

Introducing Phillip Global Rising Yield Innovators Fund

Phillip Global Rising Yield Innovators Fund (or “the Fund”) is the first-to-market, Singapore-domiciled fund that focuses on both dividend yield to achieve sustainable income streams and long-term capital growth to enhance shareholders’ returns.

The Fund’s strategy is to invest primarily in a portfolio of global equities with quality businesses that generate sustainable long-term value. The Fund believes that superior, innovative companies with growth models that are resilient in economic downturns will continue to ride on secular growth tailwinds and in doing so, the aims to achieve a net fee of return that exceeds that of the reference benchmark, Dow Jones Global Select Dividend Index.

To avoid potential value traps hampering on returns, the Fund will seek to avoid cyclical or old economy stocks that may be once-stable. In our view, innovative companies could be more resilient in economic downturns to deliver higher than average return on investment over the long-term horizon.

The “Innovation” Theme

The Fund will invest within the theme of innovation. In the selection of investments, the Fund Managers define “innovators” as companies that generate sales in technologically enabled new products and services that potentially transforms the way the world works.  These innovators are typically market leaders in their respective fields, have strong corporate cultures that foster innovation, and with business models that are unique, scalable, with recurring-revenue and possess high-profitability.

The Fund Managers believe companies relevant to this innovation theme are those that rely on or benefit from the development of new products or services, technological improvements and advancements in scientific research relating to the areas:

  • A more intelligent world – FinTech technology that make financial services more efficient, cloud computing, software-as-a-service (SaaS), artificial intelligence, e-commerce, semiconductor chip, robotics and automation technologies.
  • A healthier world – Relating to health-related technologies such as medtec devices, biotechnology, genomics and lifescience, laboratory technology, nutrition and health, animal science etc
  • A safer world – Relating to technologies for protection such as cybersecurity, public defence, safety, advanced driver assistance systems etc
  • A more delightful world – Technologies that improve leisure experiences such as digitial entertainments, food/flavor/fragrance science
  • A greener and sustainable world – Green technologies that seeks to improve environment sustainability     

A Robust Investment Framework

Inherent to the Fund, given the types of companies we invest in are on the front lines of change, innovative companies also run risks of misjudging demand preferences or being too far ahead of the market. As such, the Fund Managers combine both the top-down and bottom-up approaches to manage the Fund’s allocation, as well as identifying innovative companies. The top-down approach consists of comprehensive analysis of macro variables to identify the big picture and the undercurrents or driving forces. The top-down approach will thereby address the asset and geographical allocation decisions. Meanwhile, the bottom-up approach will dive into quantitative and qualitative aspects of individual companies to determine their absolute and relative attractiveness for the Fund to invest in.

To simplify, the Fund’s investment framework can be summarized into a systematical 4-step process:

  1. Top-down approach: Identify megatrends to determine the industries/sectors that would be key beneficiaries relevant to the “innovation” theme, as well as to help assess the segmental and geoprahical allocation of the Fund. This helps the portfolio avoid excessive concentration risk in particular segments or geographies.
  1. To identify true structural growth winners, the Fund Managers will deep diving into the fundamental qualities of the innovative companies. Some positive qualities that we look for:
    • Compelling products, services and mission-critical solutions
    • A network effect on products or services
    • Types of proprietary intellectual properties, intangible know-hows
    • The ecosystem that forges stickiness and engagement
    • Enablement of new insights and development of industries in which they operate
  1. The Fund Managers will further perform financial analysis on the innovative companies to measure their financial and business resiliency: Healthy financial metrics such as high return-on-equity, and growing operating cash flows, along with a strong balance sheet are good indications about the strength of the innovative company’s financials. It is the view of the Fund Managers that investing in such innovative companies will enhance portfolio performance above the benchmark index.
  2. Finally, we look for companies with decentralized corporate structures that foster the innovative spirit. Example of such indicators are positive growth in earnings per employee.

In addition, as part of the strategy to generate alpha and outperform the benchmark, Fund Manager may – at times – discretionarily invest in early-mid stage public listings where opportunities arise. To avoid excessive risks associated with early-stage investing, the bulk of the portfolio will be focused on liquid, large-cap equities.

Fund Information

* No periodic distribution policy at as the date of launch of the prospectus. Dividends are reinvested into the Fund.

Click here for fund documents

Important Information

This material and information herein is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation to invest in the fund(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. The information is subject to change at any time without notice. The value of the units and the income accruing to the units may fall or rise. You should read the relevant prospectus and the accompanying product highlights sheet (“PHS”) for disclosure of key features, key risks and other important information of the relevant fund (s) and obtain advice from a financial adviser (“FA”) before making a commitment to invest in the fund(s). In the event that you choose not to obtain advice from a FA, you should assess whether the fund(s) is/are suitable for you before proceeding to invest. A copy of the prospectus and PHS are available from PCM or any of its authorized distributors. Investments are subject to investment risks including the possible loss of the principal amount invested. Past performance is not necessarily indicative of the future or likely performance of the fund(s). There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. Investments in the fund(s) managed by PCM are not obligations of, deposits in, or guaranteed by PCM or any of its affiliates. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the investments mentioned herein or related thereto. This publication and Information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The fund(s) is/are not offered to U.S. Persons. The regular dividend distributions, where applicable, are paid either out of income and/or capital, not guaranteed and are subject to PCM’s discretion. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the fund(s). Past payout yields (rates) and payments do not represent future payout yields (rates) and payments. Please refer to for more information about the dividend distributions. The information provided herein is based on certain information, conditions and/or assumptions available as at the date of this publication that may be obtained, provided or compiled from public and/or third-party sources which PCM has no reason to believe are unreliable; and may contain optimistic statements/opinions/views regarding future events or future financial performance of countries, markets or companies. Any opinion or view herein is an expression of the belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. You must make your own financial assessment of the relevance, accuracy and adequacy of the information in this material. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss or consequences arising whether directly or indirectly as a result of your acting based on the Information in this material. The information does not constitute, and should not be used as a substitute for, tax, legal or investment advice. The information should not be relied upon exclusively or as authoritative without further being subject to your own independent verification and exercise of judgement. This material has not been reviewed by The Monetary Authority of Singapore.

The Dow Jones Global Select Dividend Index is a product of S&P Dow Jones Indices LLC, its affiliates and/or their licensors and has been licensed for use by Phillip Capital Management (S) Ltd.  Copyright © 2020 S&P Dow Jones Indices LLC, its affiliates and/or their licensors. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com.  S&P® is a registered trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

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With effect from 1st July 2014, this FATCA Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”) and should be read in conjunction with those Terms and Conditions, including those under our Personal Data Protection Notice.The existing terms and conditions of any contractual agreement entered into between PCM a nd you (the “Existing Terms and Conditions”) remain in full force and effect. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments,industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at http://www.phillipfunds.com/ .

On March 18, 2010, the United States of America’s (“U.S.”) Hiring Incentives to Restore Employment Act of 2010 (Pub.L.111-147H.R.2847)) (the “Act”) was enacted into law. Section 501(a) of the Act added a new chapter 4 (sections 1471-1474) to Subtitle A of the U.S.’s Internal Revenue Code (Code).Chapter 4 expands the information reporting requirements imposed on foreign financial institutions (as defined in section 1471(d)(4)) (FFIs) with respect to certain U.S. accounts (as defined in section 1471(d)(1)) of specified U.S. person, and imposes withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.

PCM will be obliged to comply with the provisions of FATCA under the terms of the inter-governmental agreement (“IGA”) Model I between the U.S. and Singapore and under the terms of Singapore’s subsidiary legislation which will be issued pursuant to Singapore's Income Tax Act (Cap. 134) to implement the IGA. “FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S. Internal Revenue Code.

“FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S.Internal Revenue Code.

“U.S. person” means a U.S. citizen or resident individual, a partnership or corporation organised in the U.S. or under the laws of the U.S. or any state of the U.S. thereof, a trust if: (i) a court within the U.S.would have authority under the applicable law to render orders or judgments concerning substantially all issues regarding the administration of the trust; and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the U.S..This definition shall be interpreted in accordance with the provisions of the U.S. Internal Revenue Code.

  • You shall provide all required documentation or information, including but not limited to your date of birth, countries of citizenship, countries of permanent residence, countries of tax residency and associated taxpayer identification numbers, which may be required to enable PCM to ascertain your U.S. tax status and share information and /or documents relating to you and/or your account(s) with domestic and international authorities for the purpose of complying with all the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations.
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  • It is the existing policy of PCM that investment products and investment accounts managed by PCM (“PCM Products and Services”) are not being offered or sold to U.S. Persons and that subsequent transfer of PCM Products and/or Services to a U.S.Persons are prohibited.
  • If investment accounts or products managed by PCM are beneficially owned by a U.S. Person or if PCM deemed you as a recalcitrant and/or a reportable person,PCM may compulsorily cancel your pending subscription order or capital injection,terminate the contractual relationship with you and withhold an amount for transferring to the relevant tax authorities as required under the FATCA, the IGA between Singapore and U.S or other countries, any applicable Singapore or international laws or regulations. PCM shall have no liability for losses,fees, costs, expense, damages, liabilities of any kind which you may have suffered in connection with such cancellation, termination, withholding amount and/or as a result of our complying with the requirements of FATCA, the IGA between Singapore and U.S or othercountries,any applicable Singapore or international laws or regulations,even if we make an incorrect assessment and decision.

PDPA

PERSONAL DATA PROTECTION NOTICE

With effect from 1st July 2014, this Personal Data Protection Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”). Without prejudice to the existing terms and conditions of any contractual agreement entered into between PCM and you (the “Existing Terms and Conditions”), which remain in full force and effect, this Notice shall be read in conjunction with the Existing Terms and Conditions. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We are required under the Personal Data Protection Act (“PDPA”) to put in place the necessary arrangements to protect personal data and comply with the PDPA. Personal data includes any data and information, whether true or not, about an individual (a natural person) who can be identified from that data or information, such as your name, NRIC, passport or other identification number, telephone numbers, address, email address and any other information relating to individuals which you or your authorized representative have provided to us or we are likely to have access to (“Personal Data”).

This Notice outlines the purposes for the collection, use and/or disclosure of your Personal Data by PCM, how we protect your Personal Data and your rights with respect to the collection, use and/or disclosure of your Personal Data. This Notice supplements but does not supersede nor replace any other consents which you may have previously provided to us in respect of your Personal Data, and your consents herein are additional to any rights which we may have at law to collect, use and/or disclose your Personal Data. We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments, industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at http://www.phillipfunds.com/.

1. PCM may collect, use and/or disclose your personal data for any of the following purposes listed below (collectively “Permitted Purposes”):-

i) carrying out activities, duties and obligations in connection with our products and services which you have applied for, including evaluating your eligibility and credit profile, verifying the identity or authority of your representatives, administration of your account and/or managing our overall relationship with you (including but not limited to the outsourcing of any of our functions to service providers or vendors, due diligence checks, accounting and portfolio valuation, billing and collections, business continuity and print management);

(ii) developing new services and/or products;

(iii) providing you with marketing, advertising and promotional information, materials and/or documents related to financial products and/or services that we may be selling, marketing, offering or promoting, whether such financial products or services exist now or are created in the future;

(iv) marketing and promotional events, including but not limited to images, photographs or videos of you during the events;

(v) meeting or complying with PCM’s internal policies and procedures and any applicable rules, law, regulations, codes of practice or guidelines, orders or requests issued by any court, legal or regulatory bodies (both national and international) (including but not limited to disclosures to regulatory authorities or financial industry self-regulatory bodies; conducting audit checks (internal/external), surveillance and investigation; handling of customer feedback or complaint; dispute resolutions; recording of telephone conversations and/or electronic communications with you; conducting checks or investigations for prevention and/or detection of financial crimes such as money-laundering, financing of terrorism, fraud and/or bribery etc.);

(vi) legal purposes, including but not limited to obtaining legal advice and enforcing or defending our legal and/or contractual rights against you;

(vii) risk management, statistical and trend analysis;

(viii) processing and/or storing data and/or information related to your relationship with PCM.

2. PCM, in order to facilitate the discharge of its duties and obligations to you, may be required to disclose your Personal Data for the Permitted Purposes and/or for processing of the Permitted Purposes on a need-to-know basis, to any of the following entities and the directors, officers, staff, employees and agents of any such entities, whether located within or outside Singapore (“Relevant Persons”):-

(i) any associate or related company of PCM and the directors, officers, staff, employees and agents of any such person;

(ii) any actual or proposed assignee or transferee of any of PCM’s rights and obligations or any actual or proposed delegate of any of PCM’s functions and duties under its contractual relationship with you;

(iii) any relevant governmental, supervisory or regulatory authority or court of law, including the Monetary Authority of Singapore, to which PCM is or may be subject;

(ix) any person in order to give effect to any instruction from you or any person acting or purporting to be acting on behalf of you;

(x) any person as PCM may consider necessary in order to comply with any order, directive or policy of any court or governmental or regulatory authority in any jurisdiction;

(xi) any person when required to do so in accordance with the laws of any applicable jurisdiction or rules of any professional self-regulatory bodies or securities exchanges;

(xii) any agent, contractor or third party service provider who provides their services in connection with the operation of PCM’s fund management business, including but not limited to the custodians, trustees, fund administrators, registrars, banks, legal firms, accounting and auditing firms, printing firms, IT service providers, credit reference agencies, credit bureaus, data screening entities for the purpose of due diligence checks and the prevention and detection of financial crimes.

3. PCM’s related companies and third party service providers shall be bound by the same provisions as set out in this Notice and we will require them to ensure that your Personal Data are kept confidential and secure.

4. You represent and warrant that your Personal Data provided to us is accurate and complete for us to make a decision that affects you or to disclose your Personal Data to the above-mentioned Relevant Persons on a need-to-know basis. Where applicable, when you provided Personal Data relating to another individual (e.g. your dependent, spouse, children and/or parents) to us, you represent and warrant that such Personal Data is accurate and complete and the consent of that individual has been obtained for the collection, use and disclosure of his/her Personal Data in accordance with the provisions listed in this Notice.

5. We will retain your Personal Data to the extent that one or more of the Purposes for which your Personal Data was collected, used and/or disclosed is/are still valid and for legal, regulatory reporting or regulatory investigations purposes for which retention may be necessary.

6. PCM may terminate any contractual relationship which you may have with us, if any information provided to us is insufficient, misleading or erroneous or if any information that is required to be disclosed to any regulatory authority for compliance with any law or regulation is not provided by you.

7. You may request access to or make corrections to your Personal Data records. Depending on the information requested PCM may charge a small fee when you request access to your Personal Data. Upon your request and subject to the provisions under the PDPA, PCM will respond accordingly within reasonably possible time. Please submit your request to our Data Protection Officer via pcm@phillip.com.sg.

8. You may withdraw your consent to any use or disclosure of your Personal Data for any or all of the Purposes as set out in this Notice by giving written notice to us. If you withdraw your consent(s), depending on the nature of your request, we may not be in a position to continue to provide our products or services to you or administer any contractual relationship in place. Such withdrawal may be considered a termination by you of any agreement you may have with us. Where there is any breach of your contractual obligations or undertakings, PCM’s legal rights and remedies are expressly reserved in such event.