In 1H23, global equities rallied by +13.9% while global bonds returned +1.4%. The rebound in equities extended into Q2, driven by supportive economic growth data. On the contrary, fixed income detracted over the quarter as further rate hikes were factored in due to persistent core inflation.

During the period, the Income portfolio returned +0.9% (in SGD terms) and +1.1% (in USD terms) in addition to the income distributions, with all positions contributing positively.  In Q2 2023, top contributors were global quality equities fund – AB Low Volatility Equity Fund, global dividend equities fund – Fidelity Global Dividend Fund and global multi-asset fund – First Eagle Amundi Income Builder. Despite the challenges in fixed income market, our recent addition PIMCO GIS Income Fund added positive value to the portfolio.

As of end-June 2023, the portfolio’s allocation is approximately 43% in global equities and 54% in global bonds. Within equities, the focus continues to remain on dividend-oriented funds with stable cash flow generation (Average dividend yield 2.9%). Our fixed income is targeted towards higher quality investment grade bonds, with an average credit rating of A and a yield to maturity of 6.2%.

We estimate an underlying income stream within the portfolio to be over 4.5% p.a., supported by higher yields from fixed income and income equities.

Looking ahead into Q3 2023, we maintain our cautiously optimistic stance and focus on quality assets across both equities and fixed income. We maintain an overall neutral stance on equities with a focus on Asia, and a neutral stance on fixed income with a focus on developed market high quality government and corporate bonds. Hence, we initiated a new position in Schroder Asia More+ by shifting from Schroder Asian Income, to capture the income and growth opportunities in Asia.

Lastly, we view that interest rates are near peak and hence, maintain a preference for fixed income over cash given the positive yield carry from high quality credit.

Income Portfolio		Comfy Cruisin’
2Q 2023	SGD	-0.4%
	USD	-0.7%

Figures as of 30 June 2023.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

During 1H23, Singapore short term investment grade corporate bonds, as represented by the iBoxx SGD Investment Grade 1-3 year Total Return Index rose 1.2%, helped by rise in short term market yields.  The SaveUp portfolio, returned -0.7% (before income distributions), with all holdings providing a positive total return in the period.

The SaveUp portfolio focuses on maintaining a duration of less than 3 years; hence, it is more sensitive to the 2-year US Treasury bond yield movements. In 2Q23, the 2-year US-Treasury bond yields increased from 4.1% to 4.9%, on growth resilience and a hawkish central bank policy.

The SaveUp model portfolio characteristics are as follows: portfolio yield-to-maturity stood at 5.5%, with a duration of about 3.1 years. It has an average credit rating of A with high yield allocation below 10%, supported by our focus on quality.

In 3Q23, we have initiated a new position in Fullerton Short Term Interest Rate Fund, which is a short-duration, (average duration: 1.3 years) high quality (average credit rating: A) SGD portfolio providing a yield of 4.8%. We entered the position by exiting the Schroder Asian Investment Grade Credit Fund, which has increased its duration in the last few months. Hence, to maintain our short duration target, we performed this switch which would bring the portfolio duration down to 2.6 years and increase the portfolio yield-to-maturity to 5.6%.

Going forward, we believe that the rate cycle is nearing its end, and with bond market having repriced for higher rates, it presents an opportunity for fixed income investors. As such, quality short-term fixed income yields are at a multi-decade high, providing an attracting risk-reward for investors seeking a higher return than those offered by fixed deposits or SG T-bills.

SaveUp Portfolio		Slow n’ Steady
2Q 2023	SGD	-1.3%

Figures as of 30 June 2023.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

Over 2Q23, global equities rose by +6.2% (as measured by the MSCI All Country World Index) on the back of better-than-expected corporate earnings, sound economic fundamentals and robust employment trends. Given the resilient economy, inflation data (while moderating) was more persistent than expected, prompting the US Federal Reserve (Fed) to consider raising interest rates further. This led to the global bond markets (as measured by the Bloomberg Global Aggregate Index) correcting by -1.5%. Gold price also declined by -2.5% over 2Q23 as the US dollar strengthened.

The Global (Comfy Cruisin') portfolio returned +1.4% over 2Q23, mainly driven by equities while fixed income detracted due to the move-up in long-term bond yields. Within equities, U.S. and Japan equities were the biggest positive contributors, while China equities continued to languish on concerns over weaker than expected economic recovery momentum.

On the whole, we stay cautiously optimistic and continue to stay fully engaged in the markets. While there are talks of the Fed hiking interest rates in July, it is also likely that the Fed is nearing the end of the current rate hike cycle. This would be supportive for risk assets such as equities and bonds. Given the cheap valuation of Chinese equities, we find optionality in China and will maintain our Asia/China exposure.

Global Portfolio		Slow n’ Steady	Comfy Cruisin’	Fast n’ Furious
2Q 2023	USD	-0.1%	1.4%	2.5%

Figures as of 30 June 2023.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

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.