digiPortfolio Insights

In Q3 2024, global income equities (MSCI AC World High Dividend Index) and global bonds (Bloomberg Global Aggregate Bond Index) returned 9.7% and 7.0% (in USD terms) respectively. Overall, income equities have started to stage a comeback given the broadening of market rally against the backdrop of Fed easing cycle. 

During the period, the Income model portfolio had a price return (excluding fund dividends) of 4.4% (in USD) and 2.6% (in SGD), respectively, with both income equities and longer duration high quality bonds contributing positively. This brought the portfolio’s YTD price returns (excluding fund dividends) to 5.9% and 4.5% in USD and SGD, respectively. In addition to price returns, the portfolio also generated an income of around 4.9% p.a. (or 1.2% per quarter). 

Key performance drivers were our allocations to global income equities (Fidelity Global Dividend) and quality Asian equities (FSSA Dividend Advantage). Additionally, our addition to longer duration fixed income (Capital Group Global Corporate Bond) also contributed to overall performance. 

As of end-August 2024, the portfolio’s allocation is approximately 47% in global equities and 49% in global bonds. Within equities, the focus continues to be on dividend-oriented funds with stable cash flow generation (average dividend yield 2.5%). Our fixed income is targeted towards higher quality investment grade bonds for their attractive yields, with an average credit rating of A, moderate duration of 4.2years and a yield-to-maturity of 6.0%. 

Looking ahead into Q4 2024, we expect the US Fed to remain on its trajectory of rate cuts with softening of economic environment. The pre-emptive 50bps rate cut provides a good backstop to risky assets, creating a conducive environment for investors looking to allocate capital into investments. 

In this environment, we have sold the Ninety-One GSF Global Managed Fund to fund the purchase of JPM Global Income to slowly add risk in the portfolio and increase the yield. Overall, the portfolio focus remains on quality bonds and income equities to generate a sustainable income for the clients. 

Figures as of 30 Sep 2024.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

In Q3 2024, global bonds (Bloomberg Global Aggregate Bond Index) enjoyed a stellar quarter, rallying by 7.0% (in USD terms), driven by a shift in interest rate cycle and a stable economic environment. 

The SaveUp model portfolio, that is invested in bonds, delivered an SGD price return (excluding fund dividends received) of 1.5% in Q3 2024, bringing YTD return to 0.9% (excluding fund dividends), as the shift in the interest rate cycle supported capital appreciation in addition to its higher yield. The portfolio’s short duration profile also shielded it from much of the downside in the early part of the year, helping generate a decent return over cash. 

Our exposure to global government bonds (Allianz Global Opportunistic Bond), global short-duration bonds (DBS CIO Liquid+) and global diversified bonds (PIMCO GIS Income) were the top contributors to the portfolio. 

Through the quarter, minor tweaks to the portfolio were made. Allocations to global diversified credit (PIMCO GIS Income and DBS CIO Liquid+) was increased, while exposure to government bonds (Allianz Global Opportunistic Bond) and floating rate notes (Allianz Global Floating Rate Notes Plus) was reduced. 

As of end-August 2024, the portfolio’s model characteristics were as follows: yield-to-maturity stood at 5.05%, with a duration of about 1.95 years. It has an average credit rating of A with high yield allocation below 10%. 

Going forward, we expect the US Fed to remain on its trajectory of rate cuts with softening of economic environment. The pre-emptive 50bps rate cut provides a good backstop to risky assets, creating a conducive environment for investors looking to allocate cash into investments. 

Figures as of 30 Sep 2024.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

In 3Q 2024, global equities (MSCI AC World Total Return Index) and bonds (Bloomberg Global Aggregate Bond Index) market diverged in performance, returning 6.6% and 7.0% respectively, driven by a shift in interest rate cycle and a stable economic environment. Despite similar results, equities and bonds delivered returns through distinct paths, showcasing effective correlation during the quarter. 

The Global ETF Portfolio (USD Comfy Cruisin) extended gains from the previous quarter, returning 6.1% (excluding dividends) in 3Q 2024 and bringing its YTD return to 13.1% (excluding dividends). The performance was supported by the portfolio’s growth tilt equities and regional overweight in the US (SPDR S&P 500 UCITS ETF) and Asia (HSBC Far East ex-Japan UCITS ETF). Long-duration high quality fixed income (iShares USD Corp Bond ETF) and Gold (iShares Gold Producers UCITS ETF) also contributed well. 

Looking ahead into Q4 2024, we expect the US Fed to remain on its trajectory of rate cuts with slow softening of economy environment. The pre-emptive 50bps rate cut provides a good backstop to risky assets, creating a conducive environment for investors looking to allocate capital into investments. Hence, we maintain a positive view on risk assets while staying selective across both equities and fixed income. 

No changes were made to the portfolio this quarter, as our current allocations remained perfectly aligned with our strategic view. Our focus remains on quality assets within the portfolio across both equities and fixed income to navigate through the dynamic macro environment. 

Figures as of 30 Sep 2024.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

In Q3 2024, global equities (MSCI AC World Index) and bonds (Bloomberg Global Aggregate Bond Index) markets rallied in tandem, returning 6.6% and 7.0% (in USD terms) respectively, driven by a shift in interest rate cycle and a stable economic environment. 

During the quarter, Global Portfolio Plus Comfy Cruisin’ had price returns (excluding fund dividends) of 4.7% (in USD) and 2.2% (in SGD), supported by exposure to quality growth equities and longer-dated bonds. Overweight positions in the US and Asian equities as well as high quality fixed income contributed well to the overall portfolio performance. On the back of strong third quarter, the YTD price returns (excluding fund dividends) reached 8.2% (in USD) and 5.1% (in SGD). 

Our new addition to JPM Japan Equity Fund and existing exposure in Asian equities through Schroder Asian Growth and FSSA Dividend Advantage, contributed well on the back of a stronger Japanese yen and a strong rebound in Chinese equities, respectively. In fixed income, our addition to high quality long duration bond funds (Capital Group Global Corporate Bond and Natixis Loomis Sayles Multisector Income) helped to participate in the market rally. 

As of end-September 2024, global equities and global bonds exposure stood at 46% and 52% of the overall portfolio respectively. The portfolio currently favours bonds over income equities for its better relative yield. Within equities, the focus continues to remain on quality growth equities with stable cash flow generation, and our fixed income allocation is targeted towards higher quality long duration corporate bonds. 

Looking ahead into Q4 2024, we expect the US Fed to remain on its trajectory of rate cuts with softening of economic environment. The pre-emptive 50bps rate cut provides a good backstop to risky assets, creating a conducive environment for investors looking to allocate capital into investments. 

To reflect our views, we have added Nikko AM Dynamic Bond Fund, a long duration fixed income fund which adopts a flexible, unconstrained strategy by combining corporate and government bonds. This was funded by Allianz Global Opportunistic Bond Fund, a pure-play government bond fund with a constraint risk budget. Overall, we continue to maintain an overweight view on fixed income and an underweight view on equities given the relative opportunity between the asset classes and would adjust the portfolio with changing market dynamics. 

Figures as of 30 Sep 2024.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

In Q3 2024, Asian equities rebounded with strong performance from India and China equities, outperforming its global peers. Furthermore, Asian REITs surged by 14.9% as their high gearing and sensitivity to financing conditions make them the prime beneficiaries of monetary easing. 

The Asia ETF Portfolio (SGD Comfy Cruisin’) returned 6.8% (excluding dividends received) in Q3 2024, bringing the YTD performance to 6.0% (excluding dividends), as our newly incepted S-REITs position the previous quarter and steep rebound in Chinese equities drove portfolio’s performance. 

Within equities, we added a broader equity ETF (CSOP CGS-CIMB FTSE APAC Low Carbon ETF) that provides diversified access to Asia Pacific in regions like Japan, S. Korea and Taiwan. This move was funded by taking profit from Singapore equities (Nikko AM Singapore STI ETF) and reducing our exposure to one of the REITs holding (Nikko AM Asia ex Japan REIT ETF) given the strong market rally. This allows for sector diversification while maintaining a meaningful position in REITs to capture potential value as it recovers. 

Looking into the final quarter of 2024, we remain constructive on Asian equities as we expect monetary easing in developed markets to be supportive for Asian equities. Corporate earnings growth, reasonable valuations and relatively light investor positioning would further underpin upgrades in the region. Given these factors, we maintain a positive view on Asian growth drivers (China and India), Asian REITs and Singapore Corporate bonds. 

Figures as of 30 Sep 2024.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

Q3 2024 Market Review

The third quarter of 2024 ended with healthy returns across most major asset classes, despite several bouts of market volatility. A combination of weaker US economic data, an interest rate hike from the Bank of Japan and thin summer liquidity saw stocks hit particularly hard in early August. However, the long-anticipated start of the Federal Reserve (Fed)’s rate cutting cycle in September, along with a less hawkish tone from Japanese policymakers and new stimulus in China, helped to soothe investor concerns and support a strong rally in stocks into quarter end.

Against this backdrop, developed market equities delivered a positive total return of 4.7% MSCI World (local currency) over the quarter. The parts of the stock market that had previously suffered most from higher interest rates generally outperformed, namely small caps and global REITs, while growth stocks gave up some of their recent outperformance. Asia ex-Japan was the top performing major region, returning 7.9% over the quarter (MSCI AC Asia Pacific ex-Japan, local currency). Having treaded water for much of the quarter, Asian stocks rallied strongly towards the end of September after Chinese policymakers announced a raft of new stimulus measures. US equity markets continued to advance, with signs of the long-anticipated ‘broadening out’ of returns finally starting to play out. In contrast, the Japanese equity market suffered decline driven by the combination of weaker US economic data and a more hawkish than expected Bank of Japan in August.

Fixed income investors were buoyed by the prospect of lower rates.14 months on from its last interest rate hike, the Fed kickstarted its cutting cycle with a 50-basis point move in September. With the unemployment rate having drifted up from a low of 3.4% in April 2023 to 4.2% today, Fed officials made it clear that they do not welcome any further weakening in the economy and are keen to quickly move interest rates back to less restrictive levels. Later in the month, the Fed’s more circumspect view on the economy was vindicated by the largest monthly decline in consumer confidence in over three years. With inflation cooling and activity relatively muted, other western central banks also deemed it appropriate to cut rates. The European Central Bank delivered its second rate cut in September taking interest rates to 3.5%. The shift in investors’ expectations for interest rates helped government bonds to perform strongly. Both investment grade and high yield credit delivered strong returns, while emerging market debt also rallied over the quarter.

Market Outlook

JPMorgan Asset Management maintains the base case of rebalancing, with the market, economy, and inflation cooling rather than collapsing. Our confidence in a return to trend-like growth and an extended cycle is growing.

JPMorgan Asset Management remains comfortable with a preference for risk assets, specifically equities and credit, as it is anticipated that the economic cycle will extend into 2025 with contained recession risks.

Within equities, JPMorgan Asset Management continues to favour markets with stronger earnings outlooks such as the US, Japan, and emerging markets. Meanwhile, yields near the lower end of a trading range supports a neutral stance on duration.

digiPortfolio: 2023 in review

Markets never move in a straight line and 2023 was testament to that. The year started with several uncertainties but looks to have closed the year on a positive note. The DBS investment team, that monitors and manages your digiPortfolios, shares their reflections on key events that defined 2023 and the impact the DBS Chief Investment Office (CIO) views had on your portfolios.

Spill over from 2022

2022 saw aggressive fed rate hikes by the US Federal Reserve, resulting in an environment that was challenging for both equities and bonds. This isn’t common as these two asset classes are typically less correlated. Investors were also anticipating a possible US recession in 2023 as higher rates would slow growth by driving up borrowing costs for businesses and consumers.

Instead, the US economy stayed resilient in 2023 as inflation slowed and the job market remained stable. Recession fears eventually receded and the Fed hit the pause button in July 2023. Markets started factoring in the possibility of rate cuts in 2024, which played a role in driving markets to finish out Q4 2023 strongly.

AI-powered rally

Despite a cautious end to 2022, the S&P 500 staged a strong recovery in H1 2023 on the back of confidence around Generative Artificial Intelligence (AI). Resultantly, the “Magnificent 7” – the S&P 500’s mega-cap technology stocks - dominated headlines with 71% year-to-date performance and related companies such as chip makers to cybersecurity also benefited from the rally.

Across 2023, the investment team’s overweight calls on tech-related growth plays yielded positive results. This is expected to extend into 2024, supported by technology tailwinds and anticipation of rate cuts.

Re-rating of China Equities

China finally moving away from its Covid Zero policy was eagerly anticipated with expectations that Asia’s largest economy was going to roar back into life. Unfortunately, this did not materialise as domestic consumption remained weak given ongoing concerns over the property sector. That said, the Chinese authorities have shown that they are prepared to step in where necessary to provide measured and targeted support.

With these key events in mind, how have our portfolios performed?

Global Portfolio (ETF)

Year-to-date, global equities (referencing the MSCI World index) and global bonds (referencing the Bloomberg global aggregate index) returned 23.12% and 4.71% respectively. The Comfy Cruisin’ Global portfolio returned 10.1% before dividends paid, and this can be attributed to some of the positive calls made in the portfolio.

Within equities, the portfolio has maintained sizeable allocations to developed market equities, especially the US. This played a key role to performance as US equities outperformed on the back of favourable economic data and strong corporate earnings. The investment team also added to Japan equities which contributed positively on expectations of more structural reforms which can boost corporate profitability. On the other hand, China equities, which were trading at multi-year lows, weighed down on portfolio performance. Opportunities do exist in China as a deep value play, which reinforces our constructive outlook.

For bonds, the strategy primarily entailed maintaining an underweight allocation and shorter duration throughout the first half of the year in response to the rising interest rates, which yielded favourable results. For H2 2023, the investment team increased fixed income allocation and extended the portfolio duration, with emphasis remaining on high-quality developed market government bonds and investment-grade credit. This proved beneficial, given the recent decline in interest rates.

Asia Portfolio (ETF)

2023 was a challenging year for Asian markets, especially China. Despite multi-year low valuations offering deep value, Chinese equities endured another difficult year, declining 13.4% (referencing the MSCI China Index in SGD terms), dragged by the country’s weaker than expected post-covid economic recovery, property sector woes and geopolitical tensions.

As a result, Chinese equities weighed down on most of the portfolio’s performance, with the Comfy Cruisin’ Asia portfolio returning -2.2% year-to-date. That said, the Chinese government has stepped up efforts to support its economy in recent months. Earnings results from big Chinese internet companies have been encouraging as they reported recovering earnings fundamentals.

The Indian market stands poised to capitalise on robust secular tailwinds, potentially positioning itself as one of the world’s fastest-growing economies in the upcoming years. As such, the investment team trimmed Chinese equity allocation and increased allocation to Indian equities. There is still a sizeable allocation to Chinese equities as is it offers deep value for investors.

For Asian REITs, our patience paid off as the asset class rebounded strongly in Q4 2023 on expectations of interest rate cuts in 2024. Looking ahead, attractive valuations and lower interest rates should support further rerating of REITs over 2024. Tapering interest rates in 2024 will be favourable for bonds and therefore we stay overweight on SGD government bonds and investment grade credits.

SaveUp Portfolio

Our SaveUp portfolio is a conservative risk portfolio which invests primarily in high quality fixed income instruments to generate total returns. A key feature of the portfolio is its shorter-term time to maturity of less than 3 years. Compared to longer-term bonds, this makes it less sensitive to interest rate movements held in a traditional bond fund.

Due to its shorter duration, the SaveUp portfolio is more sensitive to the 2-year US Treasury bond yield movements, which grew quarter-on-quarter as the Fed embraced a ‘higher for longer’ policy stance. The overall bond market (Bloomberg Global Aggregate Bond Index) detracted by -2.20% between Q1 to Q3.The portfolio declined in a similar fashion with year-to-date performance of -0.96% before dividends paid; however, the impact was cushioned by income-generating investments within the portfolio.

Throughout the year, we have adjusted the duration of the portfolio down to maintain our short duration target by funding new positions with shorter duration. Our call on high-quality funds have also worked well, as these have contributed positively to returns.

Opportunities lie ahead for fixed income investors as yields continue to stay elevated. Quality short-term fixed income yields remain at multi-decade high, offering higher expected returns over fixed deposits or SG T-bills.

Income Portfolio

The Income Portfolio is constructed for investors seeking the stability of regular income streams. With a focus on global income-generating assets, the Income Portfolio Comfy Cruisin’ is made up of fixed income securities across government bonds, corporate bonds and emerging markets, and income equities. Year-to-date, the portfolio recorded 1.1% (USD denominated) and 0.2% (SGD denominated) in returns before dividends received.

Through the year, the Income Portfolio performance was supported by our view of extending duration, high yields from high quality credit and stable performance from income equities. In addition, the portfolio paid out 4% p.a. in dividends for the year.

Shifting Currents in 2024

As we transition from a turbulent 2023 into a more certain direction in 2024, we now expect a tapering of US rates as economic data on growth and inflation points to a softening. This signals a supportive environment for fixed income whilst being cautious on equities.

Throughout the year, we have emphasized the importance of the enduring value of long-term investing and the merits of dollar-cost averaging (DCA). Despite the short-term volatilities we experienced in 2023, we saw the resilience of the market and favourable returns over the year. By staying invested for the long-term and through DCA, you can ride through market fluctuations and capitalise on growth trajectories over time.

Thank you for your continued support and as we approach a new year, the digiPortfolio team will strive to provide updates on the latest happenings in the market and portfolio performance through:

1. “Who Moved My Investment Portfolio”, our quarterly video series addressing hot topics driving markets and updating you on how the digiPortfolio team is keeping portfolios resilient.
2. Quarterly commentary from the digiPortfolio team on the DBS digibank digiPortfolio dashboard as well as our digiPortfolio insights webpage.
3. Quarterly digiPortfolio factsheets on the digiPortfolio dashboard.
4. Quarterly summarised updates sent to your registered email.

Performance figures indicated are YTD as of 15 December 2023.

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:

1. “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.
2. Quarterly commentary from the digiPortfolio investment team on the digiPortfolio dashboard as well as our digiPortfolio insights’ webpage.
3. Quarterly digiPortfolio factsheets on the digiPortfolio dashboard.
4. Quarterly summarised updates sent to your registered email.

This article was first published in DBS NAV insights, a weekly subscription-only newsletter.

18 Mar 2022

This article was first published in DBS NAV insights, a weekly subscription-only newsletter.

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.

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.