digiPortfolio Updates and Market Insights
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Who moved my digiPortfolio?
Keep up-to-date with quarterly videos that cover hot topics in the investment world and the views that are driving your digiPortfolios.
Meet the expert
Ever wonder what goes on behind the scenes in digiPortfolio? Find out exactly that and key investment principles from one of the portfolio managers.
Quarter 1 video update
Looking back, moving forward: How did digiPortfolio do in 2022? What can we expect in the coming year? Our portfolio managers review and share their take on investing in 2023.
The Return of 60/40
Over 4Q22, global equity and fixed income markets saw a strong rebound as moderating US CPI data spurred hopes that the worst of inflationary pressures may be behind us, giving room for the US Fed to potentially slow the pace of rate hikes. In addition, there was positive news from China as the government took swift and concrete steps towards ending COVID-19 lockdown measures and reopening the country.
Looking into 1Q23, we intend to trim our equities allocation back to Neutral weight and continue to prefer US and Asian equities. We will upgrade fixed income to Overweight as we now see attractive risk-reward for bonds. Within the asset class, we remain focused on quality and prefer to add to US Treasuries and short-dated Developed Market investment grade credit. On the whole, we will continue to monitor closely market risk factors such as recession concerns and adjust the portfolios accordingly.
Income Portfolio (Funds-based)
Over 4Q22, both equities and fixed income markets rebounded strongly on signs of easing inflationary pressures and expectations of a less hawkish US Fed while China equities rallied following the easing of Covid-19 measures and a roll-out of economic support policies.
During the quarter, Income portfolio returned +5.1% (in USD terms) and +2.7% (in SGD terms) in addition to the income distributions, with all positions contributing positively. Top contributors were global dividend oriented equity strategies – Fidelity Global Dividend Fund and AB Low Volatility Equity Portfolio. Further, tightening of bond yields in the quarter benefited our global Fixed Income allocation – PIMCO GIS Income Fund and Allianz Global Opportunistic Bond Fund.
The portfolio continues to be invested in income-oriented mixed asset funds for its diversified income and income-oriented equities funds for higher income streams and moderate capital growth. A large portion of the portfolio is in bonds for the steady and consistent coupon streams. We estimate an underlying income stream to be over 4% p.a. supported by higher yields from fixed income and income equities.
With easing inflationary pressure, the visibility for markets looks less cloudy, however, some concerns around monetary tightening, global recession, and geopolitical risk remain. That said, this scenario is somewhat discounted by investors and our base case remains that of a mild recession in 2023.
We believe that there is a good opportunity for the market to stage a rebound albeit in a volatile fashion in 2023. Hence, we maintain a defensive yet constructive stance in – that is staying fully invested with a focus on quality.
| Income Portfolio | Comfy Cruisin | |
|---|---|---|
| 4Q 2022 | USD | 5.1% |
| SGD | 2.7% | |
Figures as of 31 December 2022.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.
SaveUp Portfolio (Funds-based)
Over 4Q22, both equities and fixed income markets rebounded strongly on signs of easing inflationary pressures and expectations of a less hawkish US Fed while China equities rallied following the easing of Covid-19 measures and a roll-out of economic support policies.
During the quarter, 10-year US-Treasury bond yields swung from 4.2% to 3.5% on the above mentioned news. This benefited our allocation to Allianz Global Opportunistic Bond Fund, which has over 80% of its holdings in government bonds and high quality investment grade credits. In Asia, following the re-election of Xi Jinping as President at the National Party Congress, investors expected the new China government to focus its attention on improving China’s economy. This lifted investor sentiment in Chinese credits, supporting our allocations to Asian credit funds. Supported by the above, the SaveUp portfolio returned +0.6% in addition to the income distributions with all positions contributing positively.
The SaveUp model portfolio characteristics are as follows. The portfolio yield-to-maturity stood at 5.2%, with a duration of 2.4 years. It has an average credit rating of A with high yield allocation below 10%, supported by our focus on quality.
With easing inflationary pressure, the visibility for markets looks less cloudy, however, some concerns around monetary tightening, global recession, and geopolitical risk remain. That said, this scenario is somewhat discounted by investors and our base case remains that of a mild recession in 2023.
We believe that there is a good opportunity for the market to stage a rebound albeit in a volatile fashion in 2023. Hence, we maintain a defensive yet constructive stance in – that is staying fully invested with a focus on quality.
| Income Portfolio | Slow n’ Steady | |
|---|---|---|
| 4Q 2022 | SGD | 0.6% |
Figures as of 31 December 2022.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.
Global Portfolio (ETF-based)
Over 4Q22, global equity and fixed income markets saw a strong rebound as moderating US CPI data spurred hopes that the worst of inflationary pressures may be behind us, giving room for the US Fed to potentially slow the pace of rate hikes. In addition, there were positive news from China as the government took swift and concrete steps in 4Q22 towards ending COVID-19 lockdown measures and reopening the country. As a result, global equities (as measured by the MSCI ACWI Index) and global fixed income (as measured by the Bloomberg Global Aggregate Total Return Index) markets rebounded by +9.8% and +4.6% respectively over 4Q22.
The Global portfolio benefited from the global market recovery and enjoyed a strong rebound as well. Our overweight allocation to equities, especially Chinese equities, did well as the China market rallied by +13.6% over the quarter on the back of reopening hopes. The allocation to gold miners also contributed positively as gold prices climbed. However, our underweight allocation to fixed income detracted as global bonds also rallied on the back of lower long-end rates and narrowing credit spreads. For the full year 2022, although the portfolios were unfortunately down in absolute returns, they held up relatively better and outperformed the general markets which were down even more.
Looking into 1Q23, we are looking to make several adjustments to the portfolios’ asset allocation. On equities, after keeping the asset class at an Overweight stance for most of 2022, we now intend to trim the allocation back to Neutral weight. Within equities, we continue to prefer US and Asian equities. On fixed income, we will upgrade the asset class to Overweight as we now see attractive risk-reward for bonds. Within fixed income, we remain focused on quality. Hence, we prefer to add to US Treasuries and short-dated Developed Market investment grade credit, while maintaining an Underweight stance on emerging market debt. On the whole, we will continue to monitor closely market risk factors such as recession concerns and adjust the portfolios accordingly. But if our view of a mild recession is realised, we think that there are good opportunities for the market to stage a rebound this year, albeit in a volatile manner.
| Global Portfolio | Slow n Steady | Comfy Cruisin | Fast n Furious | |
|---|---|---|---|---|
| 4Q 2022 | USD | 3.1% | 6.1% | 7.9% |
| FY 2022 | USD | -12.3% | -14.9% | -16.6% |
Figures as of 31 December 2022.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.
Asia Portfolio (ETF-based)
Asian markets took a positive turn over the fourth quarter, led by China as the Chinese government swiftly rolled back Covid-19 lockdown measures and took active steps towards reopening the country. In addition, Chinese policymakers also announced a series of supportive measures for key economic sectors and reiterated the importance of supporting economic recovery. As a result, Asian equities, especially China rebounded strongly. Singapore government bonds also rallied as interest rates declined on the back of moderating inflation data.
Given our sizeable positioning in Chinese equities, the Asia portfolio benefited from the China market recovery. Singapore equities also continued to climb higher, contributing positively to performance. However, the exposure to Indian equities and REITs detracted as India saw a consolidation on rich valuations while REITs faced headwinds from higher interest rates. On fixed income, the portfolio benefited from the rally in Singapore government bonds.
Looking into 1Q23, with the constructive Zero-Covid policy pivot in China, low valuation levels and still very low global investor positioning, we believe there remains compelling upside potential for China equities and intend to increase our exposure especially to Chinese internet stocks. In turn, we will further reduce Indian equities as we see less near-term catalysts given rich valuations. On fixed income, we now see attractive risk-reward for bonds and will look to add to government bonds. On the whole, while near-term risks still remain for Asian markets which will keep equity bourses volatile, we remain constructive and expect equities to continue to recover from the lows over the next few months.
| Asia Portfolio | Slow n Steady | Comfy Cruisin | Fast n Furious | |
|---|---|---|---|---|
| 4Q 2022 | SGD | 1.0% | 2.3% | 3.0% |
| FY 2022 | SGD | -10.4% | -10.7% | -11.8% |
Figures as of 31 December 2022.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.
Market Insights
Timely articles addressing current market events.
digiPortfolio: 2022 in review
29 Dec 2022
digiPortfolio: 2022 in review
2022 was a challenging year for investors with 3 key events dominating headlines. As these events unfolded, the DBS investment team was hard at work monitoring portfolios and making tweaks that aligned them with the views of the DBS CIO office.
As we close out the year, here's a summary of these 3 events that defined 2022 for investors.
The Fed battles inflation
At the start of 2022, the US Federal Reserve had a sanguine view on inflation, describing it as "transitionary" owing to factors such as the Covid-19-related supply chain disruptions and the war in Ukraine.
However, that did not last long as before the end of 1H22, the Fed started to pivot towards an aggressive tightening policy, taking markets by surprise. This hurt both equity and fixed income markets, which rarely move in tandem.
The Fed funds rate moved sharply upwards from 0% - 0.25% in January to 4.25% - 4.5% in mid-December, effectively ending a decade-long era of ultra-loose monetary policy.
Russia-Ukraine conflict
One of the contributors to rising inflation was energy prices, with a key factor being the war in Ukraine. As Russia is one of the main energy producers globally, the conflict resulted in energy price volatility emerging from supply shortages and sanctions.
Apart on its impact on energy prices, the prolonged incursion in Ukraine was a headwind for investor sentiment.
China’s zero-covid policy
In Singapore, we will likely remember 2022 as the year the city-state eased Covid-19 restrictions. From mask wearing to travel quarantine protocols, we started to transition back to life before.
Other countries eased restrictions too. However, it wasn't the case in China where authorities maintained their zero-Covid stance before finally easing last month. After multiple quarters of suppressed market sentiment, markets lauded these reopening moves and share prices started to rebound.
digiPortfolio in review
Very rarely in the history of financial markets do we see both equities and safer assets like government bonds falling sharply and in tandem. On the back of the Fed pivoting sharply towards aggressive hikes, 2022 was one of those rare years.
Let's review the performance of two of our portfolios.
Global Portfolio (ETF)
On a year-to-date basis, global equities (referencing the MSCI World index) and global bonds (referencing the Bloomberg global aggregate index) returned -18.4% and -16.2% respectively. The Comfy Cruisin’ Global portfolio held up better at -14.8%.
These returns can be attributed to some of the stronger calls made in the portfolio.
When the war in Ukraine first broke in 1Q22, the investment team reduced exposure to European equities as energy prices soared and this positioning helped cushion the portfolio from further downside.
Within fixed-income, with the Fed continuing to sharply hike rates through Q3 with no signs of slowing down, the investment team then shifted towards shorter-duration and higher quality bonds in developed markets. This helped to mitigate volatility arising from interest rate movements and credit risk.
One detractor within the portfolio was the allocation in US equities in Q2. After the price correction in US equities earlier in the year, valuations appeared attractive and presented a compelling entry point for the investment team.
Asia Portfolio (ETF)
Apart from the impact of the Fed’s policy tightening, investor sentiment in Asia was also dampened by China’s reluctance to ease its zero-Covid policy.
Year-to-date, Asia equities (referencing the MSCI Asia Ex Japan index in SGD terms) and Asia bonds (referencing the JPM Asia Credit Index in SGD terms) returned -19.44% and -10.08% respectively. The Comfy Cruisin’ Asia portfolio did fare better as well at -10.8% even without accounting for dividends.
Like our Global portfolio, the investment team held a high quality and defensive stance as the year unfolded.
With increased exposure to IG bonds, S-REITs and government bonds added to the defensive nature of the portfolio.
Maintaining allocation to the Straits Times Index also contributed as one of the few positive performing markets in 2022.
However, our overweight stance on China provided mixed results across different quarters as sentiment ebbed and flowed. Positive returns for Chinese equities in Q2 were negated in Q3 before rallying in November again on expectations of reopening. This remains a constructive view heading into 2023 on valuations as well as re-rating opportunities from reopening.
The road ahead
Heading into 2023, all eyes continue to be on the Fed as they are expected to continue its monetary tightening policy, albeit at a slower pace.
As the saying goes, “never waste a crisis” and the investment team will continue to monitor and seek opportunities as markets evolve.
One’s investment journey is never about a short sprint, and we continue to advocate investors to stay the course, maintain a long-term view, and adopt a patient “dollar-cost average” approach particularly with the experience of 2022 in mind.
This journey is also one that investors do not have to be alone in. As with 2022, the digiPortfolio team will continue to open new communication channels and provide regular updates to you. These are currently available through:
- “Who Moved My digiPortfolio” is a new quarterly video series addressing hot topics driving markets and providing insights on how the digiPortfolio team is keeping portfolios resilient.
- Quarterly commentary from the digiPortfolio investment team on the digiPortfolio dashboard as well as our digiPortfolio insights’ webpage.
- Quarterly digiPortfolio factsheets on the digiPortfolio dashboard.
- Quarterly summarised updates sent to your registered email.
This article was first published in DBS NAV insights, a weekly subscription-only newsletter.
Staying diversified amidst China panic
18 Mar 2022
Staying diversified amidst China panic
The MSCI China Index, which tracks China equities, suffered from a turbulent start to the week as it faced a two-day sell-off, losing more than 14%. It was little different for the Hang Seng Tech Index, which tracks the performance of Chinese technology stocks. It plunged 18% since last Friday (11 Mar 2022).
Recent heavy sell-offs are deemed to be triggered by a combination of factors relating to:
- Worries that US allegations of China’s ties to Russia could lead to further sanctions on Chinese companies
- Regulatory headwinds in sectors like property and technology that have persisted since 2021
- The impact of renewed Covid-19 lockdowns affecting the domestic economy
These concerns outweighed positive economic data on Tuesday signalling strong retail sales and industry output in January and February 2022 as well as assertions that China is not involved in Russia’s war with Ukraine.
Diversification within the portfolio
It is often said that “Too much of a good thing can be bad”. This holds when it comes to investing too. At times, investors can hold a very positive view on certain markets or sectors, which might lead them to invest too heavily into those areas. Instead, investors should realise the importance of sizing up appropriate allocations within a portfolio.
As the largest economy in Asia, China investments would naturally have a place in well diversified global investor’s portfolio, let alone an Asia investor’s portfolio. It is no different for digiPortfolio as its portfolio managers seek to draw on multiple sources of returns, providing for diversification. While a well-diversified portfolio doesn’t eliminate risk, it can cushion the blow from heavy sell-offs in particular markets and sectors.
While the Asia Portfolio (Comfy Crusin’) invests in China equity as well as a China technology index, the allocations are moderated with a 15% allocation to a MSCI China ETF and just 3% in the Hang Seng Tech ETF. The Asia Portfolio further invests in Singapore bonds, Singapore equities, Real Estate Investment Trusts (Reits) and India equities within a well-diversified portfolio.
While the portfolio is down 5.4% for the month, the drawdown is relatively muted compared to the markets and sectors that are feeling the brunt of the turmoil this week.
|
1M returns in SGD (15 Feb – 14 Mar 2022) |
|
|---|---|
|
MSCI Asia Ex Japan index |
-12.0% |
|
MSCI China index |
-23.4% |
|
Hang Seng Technology index |
-30.3% |
|
Asia Portfolio (Comfy Crusin’) |
-5.4% |
In summary
There are no guarantees in investing but investment principles such as seeking diversification is crucial to tide over challenging market conditions. digiPortfolio offers investors such portfolios driven by the views of the DBS investment team.
This article was first published in DBS NAV insights, a weekly subscription-only newsletter.
Navigating the Russia-Ukraine crisis
03 Mar 2022
Navigating the Russia-Ukraine crisis
The Russia-Ukraine crisis is the main topic on everyone's minds. Many questions have been raised on how the situation may evolve, and how investment portfolios should be positioned.
Here's a factsheet from DBS Chief Investment Office that will address some of the key questions surrounding the conflict.
1. What's happening
Why did the crisis unfold?
In the years after the breakup of the Soviet Union (USSR) in 1991, many newly independent states of the former Eastern Bloc chose to join the North Atlantic Treaty Organization (NATO), a defensive alliance.
There are two distinct viewpoints on what triggered the Russia-Ukraine crisis.
The Russian view: NATO's expansion to Eastern Europe is a security threat, with the alliance's intention to admit Ukraine, deemed has crossing the line.
The US view: US President Joe Biden believes Russian leadership is harbouring a bigger ambition beyond Ukraine, to “reestablish the former Soviet Union”.
Sanctions on Russia
Economic and Financial: Limited access to financial systems for banks, key state-owned companies, and individuals as well as asset freezes and visa restrictions.
Technology: Ban on the import and export of technological goods, suspension of licenses, ban on sale of aircraft and equipment, and limits on access to semiconductors and select software.
SWIFT: Banning of some Russian banks from using the platform, which is a messaging network for financial institutions to securely send and receive information.
Low risk of economic contagion
As Russia accounts for only 1.8% of global gross domestic product, the impact on the global economy is likely limited. This compares with 24.7% for US and 17.4% for China. In terms of global trade flows, Russia accounts for only 1.7% of global exports (vs 9.5% for US and 12.1% for China), and 1.4% of global imports (vs 12.8% for US and 10.8% for China).
A bigger threat is likely to come from commodity prices. With Russia a primary exporter of energy to Europe, a prolonged crisis may result in slower production and supply shortages.
US Federal Reserve policy could be affected
With sentiment taking a turn from geopolitical tensions, the Fed could invoke more caution in the hiking cycle and pare back expectations for aggressive hikes.
Unlikely the start of a bear market
On average, global equities have rallied 38% during military conflicts. Rising uncertainties, meanwhile, triggered average gains of 138% for gold and 89% for crude oil.
During the 2014 Crimean crisis, where Russia invaded and annexed the peninsula from Ukraine, global equity markets were flat while gold and oil registered only slight dips.
European banking system little affected
Most European banks derive 1% to 2% of their profits of even less from Russia, and a much lower percentage in terms of total banking assets. Moreover, they have sufficient capital buffers to weather the direct impact of the Ukraine crisis.
The European Central Bank (ECB) could also turn more cautious on policy tightening given the proximity of the crisis to the continent, allowing funding conditions to remain stable while tensions persist.
2. What to expect now
Demand for inflation hedges, geopolitical risks, and volatility is expected to rise leading to higher gold prices. As a hard asset, gold has preserved and risen in value during environments of hyperinflation, stagflation, and negative interest rates. Its attribute of being uncorrelated to risk assets makes it an effective hedge during periods of high volatility.
Europe is most exposed to the conflict due to its proximity as well as dependency on Russia’s energy resources. Domestic sentiments will likely be weak in the near term, and recovery delayed. Investors should stay with resilient sectors such as oil majors, luxury brands, and commodity producers while scanning the banks for exposure to Russia and companies involved in the Nord Stream 2 project, which has been halted.
3. Are there market opportunities?
Investors can consider focusing on sectors and secular themes that are supported by strong fundamentals and resilient against geopolitical events. These are predominantly sectors with globally diversified revenue streams and pricing power.
The investment expressions include US big cap Technology stocks and global Health Care sectors which will maintain outperformance over the broader markets. For Technology, we maintain our conviction on semiconductor upstream and equipment, software services, cyber security, cloud computing, and electric vehicle supply chain. For Health Care, we like large pharmaceuticals and drug developers.
The above is a summary of DBS CIO Perspectives report titled "Factsheet: Navigating the Russia-Ukraine crisis" published on 28 Feb 2022. The full report can be accessed through the DBS Private Bank website, under Market Insights.
This article was first published in DBS NAV insights, a weekly subscription-only newsletter.
Subscribe to DBS NAV insights, a weekly subscription-only newsletter, and stay updated on views from our experts at the DBS CIO office and DBS Group Research.
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