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If you are a shareholder in Sabana Shari’ah Compliant Industrial Real Estate Investment Trust’s (SGX:M1GU), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. M1GU is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
See our latest analysis for Sabana Shari’ah Compliant Industrial Real Estate Investment Trust
What does M1GU’s beta value mean?
Sabana Shari’ah Compliant Industrial Real Estate Investment Trust’s beta of 0.29 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in M1GU’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. M1GU’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Does M1GU’s size and industry impact the expected beta?
A market capitalisation of S$405.44M puts M1GU in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the reits industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap M1GU but a low beta for the reits industry. This is an interesting conclusion, since both M1GU’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can M1GU’s asset-composition point to a higher beta?
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine M1GU’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given a fixed to total assets ratio of over 30%, M1GU seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of M1GU indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what M1GU’s actual beta value suggests, which is lower stock volatility relative to the market.