When a storm arrives, it’s wise to carry an umbrella to protect yourself from it.
The same practice should apply to your investments, too.
As stock markets around the world decline because of inflation and recession fears, investors are facing a perfect storm of higher costs, higher interest rates and slower growth prospects.
To date, the technology-heavy NASDAQ Composite Index has slid into a bear market by declining by 34.2% while the bellwether S&P 500 Index has declined by 25.4%.
Hong Kong’s stock market is faring badly too, with stocks there hitting an 11-year low.
You can tap on several methods to safeguard your investments and ensure that they can get through this storm unscathed.
Here are four ways you can help to protect your portfolio during these challenging times.
Fortify with blue-chips
To ensure your portfolio has a sturdy foundation, you can start by building a layer of solid blue-chip stocks to form its base.
A good example will be Singapore’s largest bank, DBS Group (SGX: D05).
The lender reported its second-highest net profit on record for the first half of 2022 (1H2022) as it benefitted from a larger loan book along with improved net interest margins.
Higher interest rates should also act as a tailwind for the business moving forward.
Singapore Exchange Limited (SGX: S68), or SGX, enjoys a natural monopoly.
Singapore’s sole bourse operator also reported an encouraging set of earnings for its fiscal 2022 ending 30 June 2022.
SGX saw its revenue rise 4% year on year while its net profit inched up 1% year on year to S$451 million.
The group also paid out a total dividend of S$0.32 per share for the fiscal year.
Companies with strong balance sheets
Next up, you should scout around for companies possessing strong balance sheets that have little or no debt.
Such robust balance sheets ensure that the business won’t be caught off-guard by surging interest rates.
VICOM (SGX: WJP) is one great example.
The testing and inspection specialist had S$65.7 million of cash with no debt as of 30 June 2022.
Similarly, human resources firm HRNetGroup Ltd (SGX: CHZ) also boasted a clean balance sheet with S$312.7 million of cash with zero debt.
These businesses may be impacted in the near term by the weak economy, but can safely get through a downturn as their balance sheets will keep them safe.
REITs with a strong sponsor
If you’re looking for a consistent source of dividends to tide you through tough times, then consider adding REITs to your portfolio.
Not just any REITs, though.
The key is to choose those with strong sponsors that can not only provide financial support should times get too tough, but will also possess a ready pipeline of assets to inject into the REIT.
A great example is Keppel DC REIT (SGX: AJBU).
The data centre REIT has a solid sponsor in conglomerate Keppel Corporation Limited (SGX: BN4).
Not only has the REIT paid out rising distributions since 2015, but it also has a pipeline of more than S$2 billion worth of data centres that it can acquire from its sponsor.
Businesses in resilient industries
The fourth effective method for protecting your portfolio is to select companies in resilient industries.
Two of these industries are consumer staples (i.e. necessities) and healthcare.
Raffles Medical Group (SGX: BSL) is a great example of a healthcare name that should do well in good times and bad.
The integrated healthcare provider reported an 11.2% year on year improvement in revenue for 1H2022 to S$382.3 million.
Its net profit surged by 51.3% year on year to S$59.7 million.
Meanwhile, Sheng Siong Group Ltd (SGX: OV8) has proven its mettle in the last two years.
The retailer, which has 66 stores located in suburban areas of Singapore, reported a steady set of numbers for 1H2022.
Revenue dipped by 0.7% year on year to S$676.8 million due to the high base effect from last year’s COVID-19 restrictions.
However, net profit inched up 2.1% year on year to S$67.5 million as the retailer reported better gross and net profit margins.
The interim dividend also increased slightly from S$0.031 a year ago to S$0.0315.
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Disclaimer: Royston Yang owns shares of Raffles Medical Group, DBS Group, Singapore Exchange Limited, Keppel DC REIT and VICOM.