Wellco Capital, a Singapore-based single-family office, is refocusing its investment strategy on cash-flow stability and undervalued opportunities while steering clear of high-risk bets in artificial intelligence and the overheated U.S. equities market.
Balancing Risk and Reward
Investment manager Kah Ken Kam explained that U.S. equities are currently trading at historically high valuations, with little margin of safety against risks such as inflation, a strong dollar, and geopolitical uncertainties. As of September 2024, the S&P 500’s price-to-earnings ratio sits significantly above its historical average, raising concerns about overvaluation.
While Kam acknowledges the transformative potential of artificial intelligence, he remains cautious about its near-term investment prospects, particularly in the semiconductor sector. The sector faces valuation challenges and geopolitical risks, including potential U.S.-China trade tensions.
Strategic Allocations
Despite avoiding broad exposure to U.S. equities, Wellco Capital selectively invests in equity-linked notes on major tech firms, online betting companies, and undervalued commercial real estate stocks. Additionally, European markets are drawing interest due to the potential for rate cuts. Key sectors include German residential real estate, French shopping malls, and UK nursing homes.
The family office has also added UK homebuilders and continues to evaluate opportunities in companies like Boeing, despite its ongoing production and profitability challenges.
A Discerning Approach to Valuation
Kam is critical of overly simplistic valuation metrics, such as EV/sales, that overlook profitability and operational efficiency. His focus within AI investments lies in companies using the technology to enhance cost efficiency and engagement, like Netflix and Spotify.
Private Equity Opportunities
Wellco Capital also sees potential in private equity secondary markets, leveraging discounts of up to 30% to acquire assets like a data center fund with Big Tech clients.
By prioritizing resilient investments and steering clear of speculative trends, Wellco Capital aims to ensure long-term stability and growth for its portfolio.
