In Q4 2024, markets were faced with volatility from days leading to US Elections, a “trifecta” Republican victory and US FED’s narrative changes. The concerns around trade tariffs and slower than expected interest rate cut cycle weighed on global bonds (Bloomberg Global Aggregate Index detracted by 5.1%) more than equities (MSCI All Country World Index detracted by 0.8%). The increase in bond yields negatively impacted income equities (MSCI ACWI High Dividend Index detracted by 5.9%).
During the period, the Income portfolio returned -2.2% (in USD) and -0.8% (in SGD), respectively, staying resilient despite the market volatility. Despite a challenging year for income assets, the portfolio’s focus on core income generating assets and active allocation management in fixed income helped buffer the downside, resulting in a full year return of 7.0% (in USD) and 7.0% (in SGD). The return generated were more than enough to achieve the income distributions of 4.0% p.a.
Key performance drivers were our allocations to global core and income equities (AB Low Volatility Equity Fund, Fidelity Global Dividend) and diversified Asian multi-asset (Schroder Asia More+). Additionally, our addition global core multi-asset with growth exposure (BGF ESG Multi-Asset Fund) also contributed to overall performance.
Going forward, recent Fed rate cuts and sustained corporate earnings growth are expected to support risk assets. However, higher valuations and increased market volatility necessitate a more selective approach to both equities and fixed income, allowing us to capitalize on specific opportunities. For Q1 2025, we have switched our position from First Eagle Amundi Income Builder to First Eagle Amundi International to gain the benefit of the equity component from the manager, while reducing the credit exposure.
The portfolio’s current allocation is approximately 50% in global equities and 46% in global bonds. Within equities, the focus continues to be on dividend-oriented funds with stable cash flow generation (average dividend yield 2.3%). 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 c.4.8years and a yield-to-maturity of 6.0% (based on end-Nov 2024 fund factsheets).
| Income Portfolio | Comfy Cruisin’ | |
|---|---|---|
| Q4 2024 | SGD | -0.8% |
| USD | -2.2% | |
| FY 2024 | SGD | 7.0% |
| USD | 7.0% | |
Figures as of 31 December 2024.
The above table is based on the Indicative Model Portfolio returns and is gross of fees. Individual performance may vary.
In Q4 2024, markets were faced with volatility from days leading to US Elections, a “trifecta” Republican victory and US FED’s narrative changes. The concerns around trade tariffs and slower than expected interest rate cut cycle weighed on global bonds (Bloomberg Global Aggregate Index detracted by 5.1%) despite interest rate cut in the December FOMC meeting.
Despite the weakness in bond market, the Save Up model portfolio remained resilient with a return of -0.4% in Q4 2024. Its short duration, high quality stance helped cushion the market impact, delivering full year returns of 2.7% in line with its goal of outpacing cash investments.
Our exposure to global floating rate bonds (Allianz Global Floating Rate Notes+), global short-duration bonds (DBS CIO Liquid+) and global diversified bonds (PIMCO GIS Income) were the top contributors to the portfolio.
Through the quarter, we have increased our existing allocations in high quality short duration SGD Credit (Nikko AM Shenton Short Term Bond Fund), global diversified credit (PIMCO GIS Income) and floating rate notes (Allianz Global Floating Rate Notes Plus). The above was funded by exiting the Allianz Global Opportunistic Bond Fund, substantially reducing our portfolio’s exposure to pure government bonds and focusing on high quality credit.
Taking these moves into account, the portfolio’s model characteristics were as follows: yield-to-maturity stood at 5.26%, with a duration of about 2.09 years. It has an average credit rating of A with high yield allocation around 4.6% (using end-Nov 2024 fund factsheets).
Going forward, we expect the US FED to remain on its trajectory of rate cuts albeit at a slower rate. The shift in interest rate curve remains a conducive environment for investors looking to allocate cash into investments.
| SaveUp Portfolio | Slow n’ Steady | |
|---|---|---|
| Q4 2024 | SGD | -0.4% |
| FY 2024 | SGD | 2.7% |
Figures as of 31 December 2024.
The above table is based on the Indicative Model Portfolio returns and is gross of fees. Individual performance may vary.
In Q4 2024, markets were faced with volatility from days leading to US Elections, a “trifecta” Republican victory and US FED’s narrative changes. The concerns around trade tariffs and slower than expected interest rate cut cycle weighed on global bonds (Bloomberg Global Aggregate Index detracted by 5.1%) more than equities (MSCI All Country World Index detracted by 0.8%). Despite a challenging last quarter, global markets performed well through 2024 with diversified allocations generating positive returns.
The balanced allocation Global Portfolio, Comfy Cruisin’ (medium risk) demonstrated resilience despite the overall mixed performances of risk assets, returning -1.6% in Q4 2024 and closing the FY2024 with a return of 11.1%. The performance was supported by the portfolio’s focus on growth tilt equities and regional overweight in the US. Further, our duration positioning in bonds also added value to the overall portfolio performance.
Looking ahead into 2025, the recent Fed rate cuts and continued corporate earnings growth should support risk assets. Being said, higher valuations and increased market volatility lead us to be more selective in our approach to both equities and fixed income to capitalise on specific opportunities.
We have shifted our underweight in equities to a neutral and allocated towards SPDR S&P 500 UCITS ETF, reinforcing our view on US exceptionalism. This move was funded by marginally trimming positions in iShares JP Morgan USD EM Corp Bond ETF and iShares Global Corp Bond ETF.
| Global Portfolio | Slow n’ Steady | Comfy Cruisin’ | Fast n’ Furious | |
|---|---|---|---|---|
| Q4 2024 | USD | -1.4% | -1.6% | -1.5% |
| FY 2024 | USD | 6.5% | 11.1% | 14.5% |
Figures as of 31 December 2024.
The above table is based on the Indicative Model Portfolio returns and is gross of fees. Individual performance may vary.
In Q4 2024, markets were faced with volatility from days leading to US Elections, a “trifecta” Republican victory and US FED’s narrative changes. The concerns around trade tariffs and slower than expected interest rate cut cycle weighed on global bonds (Bloomberg Global Aggregate Index detracted by 5.1%) more than equities (MSCI All Country World Index detracted by 0.8%). Despite a mixed last quarter, global markets performed well through the year with diversified allocations generating positive returns.
During the quarter, the balanced allocation Global Portfolio Plus, Comfy Cruisin’ (medium risk), had total returns of -1.7% (in USD) and 0.3% (in SGD), backed by our overweight allocation to US Equities and focus on high quality credit. On the back of a resilient fourth quarter, the portfolios generated full year returns of 7.4% (in USD) and 7.3% (in SGD).
Top contributors to performance were US equities – Franklin US Opportunities Fund and global growth equities – Capital Group New Economy Fund (large US exposure), given the exceptionalism of the US market. In fixed income, our exposure to high quality diversified credit – Schroder Global Credit Income and PIMCO GIS Income, helped through the year.
As of end-December 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, the recent Fed rate cuts and continued corporate earnings growth should support risk assets. Being said, higher valuations and increased market volatility lead us to be more selective in our approach to both equities and fixed income to capitalise on specific opportunities.
For Q1 2025, we continue to maintain an overweight view on fixed income and have upgraded equities to a neutral, with a view positive view on global growth. To capitalize on these opportunities, equity exposure was increased through additional allocations to the BNY Mellon Long-Term Global Equity Fund and the Capital Group New Economy Fund, two funds with growth tilts and substantial allocations to the US. This was funded by trimming fixed income positions in Loomis Sayles Multisector Income Fund, Schroder ISF Credit Income Fund and the BGF Asian Tiger Bond Fund.
| Global Portfolio Plus | Slow n’ Steady | Comfy Cruisin’ | Fast n’ Furious | |
|---|---|---|---|---|
| Q4 2024 | SGD | -1.3% | 0.3% | 1.5% |
| USD | -1.5% | -1.7% | -2.2% | |
| FY 2024 | SGD | 3.3% | 7.3% | 10.2% |
| USD | 4.6% | 7.4% | 9.0% | |
Figures as of 31 December 2024.
The above table is based on the Indicative Model Portfolio returns and is gross of fees. Individual performance may vary.
In Q4 2024, Asian markets and income-oriented equities (S-REITs) corrected after US elections, with Asian equities facing pressures from the heightened concerns regarding trade tariffs under president elect Donald Trump. Consequently, China’s stimulus measures failed to lift investors’ sentiments as fears of an intensifying trade war beckoned. However, the portfolio demonstrated its resilience in overcoming market volatility, as the balanced allocation Asia ETF Portfolio, Comfy Cruisin’ (medium risk) returned -1.5% in Q4, bringing the full year performance to 7.7%.
Going into 2025, we remain constructive on Asian equities on the back of region’s valuation discount compared to other developed markets, supportive demographics, and tailwinds from corporates to adopt a China plus one strategy as they seek to diversify their supply chain processes across Asia. We remain watchful of any headwinds from Trump’s targeted tariffs in the region and would adjust the allocations if necessary to navigate the environment.
Taking these factors into account, the current portfolio allocation remains unchanged covering S-REITs, India, China as well as other regions of Asia. The portfolio is well diversified and is geared to capitalise on specific opportunities and potential tailwinds in the region going forward. However, prudence will be continued to be exercised in our equity selections to capitalise on any further new developments in the region as the new year progresses.
| Asia Portfolio | Slow n’ Steady | Comfy Cruisin’ | Fast n’ Furious | |
|---|---|---|---|---|
| Q4 2024 | SGD | -0.6% | -1.5% | -2.1% |
| FY 2024 | SGD | 5.6% | 7.7% | 9.2% |
Figures as of 31 December 2024.
The above table is based on the Indicative Model Portfolio returns and is gross of fees. Individual performance may vary.
Q4 2024 Market Review
The fourth quarter of 2024 proved a volatile period for both equity and bond markets. Global equities advanced, led by the US market while fixed income markets encountered headwinds amid central banks' efforts to manage inflationary pressures and political uncertainties.
Equity markets experienced volatility but ultimately delivered positive returns, with the MSCI World (local currency) index gaining 1.9%. After a challenging October, equities rallied following the election of Donald Trump in November, with the S&P 500 posting a gain of 2.5%, its largest one-day increase since March 2022. Anticipation of further tax cuts, expansionary fiscal policy and a nationalist trade policy boosted US equities. This optimism was further supported by a modestly positive Q3 earnings season and better-than-expected retail sales figures. The market experienced a sell-off towards the end of the period, driven by a reduction in the number of interest rate cuts expected by the Fed in 2025. Outside of the US, most regional equity markets faced challenges as political instability and concerns about the incoming Trump Administration weighed on investor sentiment. Japanese equities continued to make gains in local currency terms as the yen weakened towards the end of the year. Emerging markets lagged developed markets, posting a -4.4% return (MSCI Emerging Markets, local currency). Chinese equities came under pressure driven by fears of trade conflicts and doubts about the adequacy of previously announced government support measures to address the domestic real estate and confidence crisis.
Fixed income markets disappointed with notable sell-offs in government bond markets which returned -1.7% (JPM GBI, USD Hedged). The quarter was characterized by central banks’ delicate balancing act as they navigated inflationary pressures, economic uncertainties, and political developments. By the end of the quarter, the Fed had cut rates for the third consecutive time. Persistent inflation and easing labour market conditions led Fed Chair Powell to advocate for a cautious approach to further rate reductions towards the year end. Treasury yields rose over the quarter with the US 10-year yield reaching its highest level since May. The European Central Bank continued its rate cutting trajectory, delivering a cumulative 50bps cut in October and December and signalled their commitment to gradual rate cuts. In the UK, the budget announcement in October exerted pressure on Gilts as stronger-than-expected spending plans for 2025 were unveiled. While the Bank of England cut rates by 25bps in November, it held rates steady in December as services inflation remains a significant concern. The Bank of Japan (BoJ) maintained its cautious approach, keeping rates on hold in December.
Market Outlook
JPMorgan Asset Management anticipates that the economic cycle will continue to extend, with risk assets poised to deliver positive returns in 2025.
This positive outlook is driven by the anticipated interest rate cuts and the pro-growth policies expected from the new U.S. administration.
JPMorgan Asset Management expresses a pro-growth outlook, anticipating that the economic policies under Trump's administration, centred on
immigration reform, tariff adjustments, fiscal and tax policy changes, and deregulation, could significantly stimulate the U.S. economy.
JPMorgan Asset Management demonstrates a strong preference for U.S. equities and credit. While remaining neutral on duration, the firm has adopted a more constructive stance in light of the recent increase in yields.
Retirement Portfolio | Early Career | Mid Life | Near Retirement | |
|---|---|---|---|---|
Q4 2024 | SGD | 1.4% | 1.1% | -1.3% |
FY 2024 | SGD | 12.3% | 11.1% | 4.0% |
Figures as of 31 December 2024.
The above table is based on the Indicative Model Portfolio returns and is gross of fees. Individual performance may vary.
Achieving positive returns amidst market challenges
In 2024, we witnessed a shift in the economic landscape, driven by the changing interest rate environment and US presidential elections. While these caused market fluctuations, they also presented opportunities to strategically adjust investment portfolios.
With 2024 behind us, we'd like to share key market highlights and insights from DBS Chief Investment Office (CIO) and the team managing your digiPortfolios.
A Tale of Two Halves
In 1H24, inflation moderated from 2023 highs, and economic growth remained resilient. This created heightened market volatility as investors weighed the probabilities of a soft landing versus a recession. In Asia, while China’s economic recovery was slower than expected, other economies performed well, resulting in a mixed overall performance.
The US Federal Reserve's long-awaited rate cut in 2H24 – that served up a bumper 50-basis-point cut in September, marked the start of a monetary easing cycle. Singapore's 6-month Treasury bill auction on 19 December 2024, yielded a 3.02% p.a. cut-off rate, reflecting the broader trend of lower interest rates. This spurred increased investor interest in global bonds seeking higher yields.
In November, Donald Trump and the Republicans attained a “trifecta” victory at the US Elections. The market balanced the inflationary implications of Trump 2.0 policies against the growth prospects of pro-cyclical measures, while responding to key nominations made ahead of the January inauguration.
How has digiPortfolio performed in 2024?
Here are the performance figures for digiPortfolios in 2024:
Portfolio | Total Returns as of 31 Dec 2024 |
|---|---|
Retirement Portfolio SGD1 | 12.2% |
Global ETF USD2 | 11.1% |
Global Portfolio Plus SGD2 | 7.3% |
Asia ETF SGD2 | 7.7% |
Income SGD | 7.0% |
SaveUp SGD | 2.7% |
1Retirement digiPortfolio utilises a glidepath strategy based on an individual’s years to retirement to determine the portfolio mix. Figures referencing a 70% equity – 30% bond mix.
2Based on Comfy Cruisin’ (medium risk) Portfolios.
Global Portfolios
The portfolio performance through the year was supported by our view to trim Europe equities in favour of US equities, and our overweight stance on Asia. Fixed income also contributed positively, supported by our focus on duration management in a challenging interest rate environment. Overall, it was a strong year for globally diversified portfolios with the Global ETF portfolio and Global Portfolio Plus delivering total returns of 11.1% (in USD) and 7.3% (in SGD) on a YTD basis. Retirement digiPortfolio, a global portfolio by nature with its diversified mix of global equities and bonds, benefited as well with positive YTD returns across all portfolio mixes.
Asia ETF Portfolio
Despite the diverging performance of Asian economies, the overall performance during the year was supported by a rebound in China equities, stable returns from Indian equities and a strong outperformance by Singapore equities. Additionally, our decision to reduce Asian Real Estate Investment Trusts (REITs) in 3Q24 buffered the portfolio against market volatility. Overall, the portfolio generated a total return of 7.7% (in SGD) during the year.
Income Portfolio
The Income Portfolio delivered a total return of 7.0% (in SGD) driven by our strategic focus on quality core income assets over cyclicals, and effective duration management through interest rate volatility. The portfolio aims to strike a balance between global dividend equities and global bonds while maintaining a consistent income target of around 4.0% p.a. (or 1.0% per quarter).
SaveUp Portfolio
SaveUp portfolio delivered a total return of 2.7% (in SGD), achieving its goal of outpacing cash investments. The short duration nature of the portfolio and high-quality positioning contributed to its positive performance, despite weakness in the broader bonds market. The recent volatility in interest rate environment presents a favourable entry point for investors to deploy additional cash to short-duration investments, as a hedge against inflation and declining deposit rates.
Looking Ahead
The recent Fed rate cuts and continued corporate earnings growth support our positive outlook on risk assets. However, we'll maintain a selective approach to both equities and fixed income to capitalise on specific opportunities.
Our 2024 performance underscores the importance of a diversified investment strategy. By staying adaptable to changing market conditions, we continue to build resilient portfolios for long-term growth.
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 trust in digiPortfolio. Stay informed with our updates through:
- “Who Moved My Investment Portfolio” – Quarterly video series covering market trends and portfolio updates
- Quarterly Commentary and Insights – Available on digiPortfolio dashboard within digibank and the Insights webpage.
- Quarterly Email Updates – Delivered to your registered inbox.
- Quarterly Factsheets – Available on the digiPortfolio dashboard.
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:
- “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.
- Quarterly commentary from the digiPortfolio team on the DBS digibank digiPortfolio dashboard as well as our digiPortfolio insights webpage.
- Quarterly digiPortfolio factsheets on the digiPortfolio dashboard.
- 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:
- “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.
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.
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.
