Barbell to win as volatility lingers

Find out how the DBS CIO Office allocates assets based on our highest conviction calls
Chief Investment Office04 Oct 2019
Photo credit: AFP Photo

CIO Portfolio

The "CIO Portfolio" is a global, cross-asset model portfolio based on a Barbell Strategy. In this new report, we review the performance of the DBS CIO Barbell Strategy Index and also share our latest high conviction calls.



Market Update

September was characterised by rising government bond yields as the US Treasury (UST) 10-year yield rose 16.9 bps despite the US Federal Reserve cutting its benchmark policy rate. The yield uptick predominantly reflects moderating trade tension between the US and China as both nations have agreed to return to the negotiation table. However, we do not expect a quick resolution. As volatility lingers in the coming months, the UST 10-year yield will likely be capped at 1.75%.

In the equity space, US “value” play has momentarily outperformed “growth” in September, led by Financials and Utilities. This is a healthy development in our view as it suggests a “broadening” of the US equity rally. In any case, things are cheap for a reason. We do not expect US “value” sectors’ outperformance to sustain beyond the year given the weak earnings growth prospects, notwithstanding structural challenges, facing these sectors.

Performance Review

Since launch, the DBS CIO Barbell Strategy Index has gained 0.45%, with Sharpe ratio of 81.0% and maximum drawdown of 1.38% (as of 30 September 2019). In growth equities, our Automation theme garnered the highest return of 5.6% (on simple average basis) while the main laggard was e-Commerce (-1.4%). For income equities, China’s banks and Singapore/Hong Kong REITs garnered returns of 4.9% and 3.6%, respectively. Fixed income performance was largely flat (-0.2%) while our gold exposure was down 6.5% on average.

As we head into the final months of 2019, we expect market volatility to persist. We have added weights to income equities via our exposure to the high dividend-yielding energy sector in Europe.

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