The Return of 60/40

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.

We maintained our defensive stance by continued reduction of growth equities and high yield bonds, in favour of quality equities – AB Low Volatility Equity Fund and quality fixed income – Allianz Global Opportunistic Bond Fund.

During the quarter, Global Portfolio Comfy Cruisin’ returned +6.1% (in USD) and +4.0% (in SGD terms) while the Global Portfolio Plus Comfy Cruisin’ returned +5.1% (in USD) and +3.5% (in SGD terms), with all positions contributing positively. Increasing allocation to value (Harris US Equity Fund) and quality (AB Low Volatility Equity Portfolio) oriented strategies, added value to our portfolio as quality outperformed growth (MSCI World Quality TR Index: +10.2% vs MSCI World Growth TR Index: +4.7%) during the quarter. Further, 10-year US-Treasury bond yields swung from 4.2% to 3.5%, benefitting our global Fixed Income allocation – Allianz Global Opportunistic Bond Fund and Natixis Loomis Sayles Multisector Income. Lastly, our positioning in China staged a rebound after the re-opening of Chinese economy.

Looking into 2023, we continue to remain neutral on equities given rising earnings risk but stay positioned in China and US equities. We upgrade bonds to an overweight, while staying in the high quality space, as we see investment grade credit with yields in excess of 5% providing a blend of income and safety.

While market volatility may remain high in 2023 on recession concerns, we think long-term investors should remain engaged in a multi-asset portfolio of equities and bonds after both asset classes have fallen sharply in tandem last year, as they present an opportunity to invest in high quality securities at attractive valuations.

Figures as of 31 December 2022.
The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received. Individual performance may vary.

05 Dec 2022

Fed in Focus

Equities and bond markets continued their weakness into the third quarter as the US Federal Reserve chairman committed to combatting high inflation. The MSCI AC World Total Return Index representing global equities declined 6.8% while the Bloomberg Barclays Global Aggregate Index representing global bonds declined 6.9% in USD terms.

To mitigate market volatility, we turned more defensive and reduced our exposure to growth equities and high yield bonds. For example, we reduced our holdings in the Capital New Economy Fund and added the AB Low Volatility Equity Fund in equities. In bonds, we reduced the Natixis Loomis Sayles Multisector Income Fund and added the Allianz Global Opportunities Bond Fund. This helped to stabilise the portfolios. Both our Global Portfolio and Global Portfolio Plus Comfy Cruisin’ portfolios outperformed their market reference index (comprising 50% in global equities and 50% in global bonds), declining around 4.5% and 4.7% respectively against a decline of 6.8% by the reference index.

We expect markets to remain volatile in the near term, driven by a hawkish Fed and rising recession risk. On the positive side, US employment is robust, as are household and corporate balance sheets. Elsewhere, Europe is facing continued geopolitical tension and the energy crisis is driving inflation while Asia is facing challenges from China’s Zero Covid policy and strengthening USD. On balance, our base case is that there will be a shallow recession which could cause the US Fed to pause and review interest rate policy. Longer term, equities and bond market valuations look attractive following the repricing. For example, investment grade corporate bond yields are now around 5.3% compared to 1.6% a year ago. Similarly, global equities price-to-earnings ratio is around 13.7x which is near historical lows. While cheap valuations are not sufficient to spark a rebound, they would provide support and mitigate market weakness.

In view of the uncertainty, we will maintain a cautious stance and keep a quality bias in both equities and bonds. We are invested in the AB Low Volatility Equity Fund that focuses on stable quality growth stocks such as Microsoft (Software), Novo Nordisk (Large Pharma) and Roche (Medical Equipment). For bonds, we are invested in the Allianz Global Opportunities Bond Fund that focuses on government bonds and investment grade credits.

Figures as of 30 September 2022.
The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received. Individual performance may vary.

29 Jul 2022

Rising Above Inflation

Equities and bond markets were weak in the second quarter on concerns that central banks’ aggressive response to inflation will increase the risk of recession. Global equities (as measured by the MSCI AC World Total Return Index) declined 15.7% while global bonds (as measured by the Bloomberg Barclays Global Aggregate Index) declined 8.3% in USD terms. The performances of our Global Portfolio and Global Portfolio Plus portfolios were weighed down by the market correction despite our moves to reduce exposure to growth equities and add funds that are invested in defensive and value stocks last quarter. Our sense is that this was a general market correction driven more by sentiment rather than fundamentals. We have reviewed the funds with their respective managers to ensure that the overall holdings are companies in good health that are able to recover once the dust settles.

During the quarter, we reduced our holdings in the BNY Mellon Global Equity Fund, the Capital New Economy Fund and the Franklin US Opportunities Fund that have growth biases. We added the AB Low Volatility Equity Fund that focuses on stable growth quality stocks that has amongst its preferred companies, Microsoft (Software), Abbott Labs (Healthcare) and American Tower (Telecom Reits). We also added the Harris US Equities Fund that invests in US value stocks such as those in the financial and communications sectors. In bonds, we trimmed our holdings in Asia and added to the developed markets investment grade corporates through a new fund, the Schroder Global Credit Income Fund that has a bond yield of 6% and duration of 5 years.

We expect markets to remain volatile driven by a hawkish Fed and rising recession risk. On the positive side, US employment is robust, as are household and corporate balance sheets. Elsewhere, Europe is facing an energy crisis and looks weak while China is stimulating its economy and looks attractive. On balance, our base case is that there will be a mild recession but not a lasting one. Amid these macro trends, equities and bond market valuations look attractive following the repricing. Investment grade corporate bond yields are now around 4.2% compared to 1.6% a year ago. Similarly, global equities price to earnings ratio is around 14.5 x, near its 5 year lows. Investor sentiment is also poor after months of uncertainty. Such conditions provide a more favourable longer term outlook. We believe that the market has discounted a large amount of risk and will remain invested. Nevertheless, we expect volatility to remain in the near term and look to reduce portfolio beta further until we see more stable market conditions. We will shift the portfolio nearer to our preferred regions that are the US, Asia, and Japan as they look more resilient. We will trim Europe where necessary as the region is facing an energy crisis. We will add to income equities given that dividend yields have risen. In bonds, we will add a funds with larger exposures to government bonds as a lot of the interest rate hike expectations are priced into the higher treasury bond yields. One fund that we are considering is the Allianz Global Opportunities Fund that has higher quality bond assets.

We will monitor events closely and adjust our strategy where needed.

The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received. Individual performance may vary.

06 May 2022

Anchor in the Storm

Global equities and bonds had a turbulent 1st quarter. Investors were concerned that central banks would become overly aggressive in raising interest rates to combat rising inflation. The Russia-Ukraine war added to anxieties as disruption in energy supply caused the oil price to spike to $120. At its trough, the MSCI All Country World Index declined around 13% before rallying to end the quarter -5.4%. The hawkish Fed stance weighed on global bonds and the Bloomberg Barclays Global Aggregate Total Return Index ended the quarter -6.2%.

The weak market returns weighed heavily on our portfolios notably the bond centric ones. The economic backdrop remained strong as developed markets continued to open up. We remained invested with the view that equities prices were oversold and the sharp rise in bond yields had heavily discounted the rise in interest rates. Our CIO office had studied the impact of rising inflation during periods when economic growth remained firm on equities and determined that markets historically continued to rise during these periods. Presently, corporate earnings growth remains good albeit with some moderation. Corporate profitability also looks good, supported by stable household balance sheets and stable wages. Similarly, the negative impact on equities during major military conflicts such as the Gulf War did not last long and markets still rose on average. Over the quarter, Global Portfolio and Global Portfolio Plus (referencing the Comfy Cruisin’ risk level) returned -8.4% and -8.5% (before accounting for dividends paid) respectively.

In equities, we remain focused on growth stocks with an income tilt. We are invested in funds such as the Capital New Economy Fund that invests in global companies benefiting from secular growth trends such as Cloud Computing, E-commerce and digital transformation. We also hold the Franklin US Opportunities Fund that similarly invests in growth companies in the US. In income equities, we have the First Sentier Dividend Advantage Fund that focuses on companies with good cash flow. Asia equities has sold off leaving the underlying dividend yield attractive as dividend pay-out have been relatively stable amid the price correction.

In bonds, we maintained a defensive posture by keeping duration short of around 4.5 to 5 years, focusing the portfolio on developed markets investment grade credits. As treasury yields rose and corporate spreads widened, investment grade corporate bond yields are now at an attractive 4.5%. We continue to favour the Loomis Sayles Multisector Income Fund and the Pimco Diversified Income Fund that are focused on higher income generation strategies in developed markets. In Asia, we will continue to hold the Blackrock Asia Tiger Fund that invests mainly in Asia corporate bonds, capitalising on a recovery in Asia bonds with an attractive yield of around 6%.

Looking ahead, we expect the near-term volatility to linger as the Russia-Ukraine conflict drags on and the Fed continues to fight inflation aggressively. As long as economic growth continues on an upward trend, we expect investor concerns to subside. The DBS economics team expects inflation to peak in the second half and this should give some room for the Fed to moderate its hawkish posture. In Asia, the CIO has upgraded China on valuation grounds with a clear easing tone from the government being the catalyst. We also remain positive on US equities as the recent sell-off has improved valuation. Similarly, the CIO upgraded developed market credits as bond yields are once again attractive. We have introduced another US equities fund and a developed market bonds fund to capitalise on the attractive valuations as part of this quarter’s review.

The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received. Individual performance may vary.

03 Feb 2021

A Divergent World

Global equities rallied in 4Q21 driven by bullish sentiment in developed markets. In contrast, Asia equities declined, weighed by increasing recession risks in China from regulatory tightening. The bond market was flat and struggled against the headwinds of a more hawkish Fed and the correction in China property bonds. In 4Q21, the MSCI All Country World Index rose around 6.7% while the Bloomberg Barclays Global Aggregate Total Return Index was flat.

We remained fully invested during this period with a tilt towards developed market equities. This lifted our moderate risk (“Comfy Cruisin’”) Global Portfolio Plus and Global Portfolio portfolios respectively. Our portfolios have limited exposure to Asia equities and bonds, mitigating the volatility from the China markets sell-off.

During the quarter, the standout performers in developed market equities were the BlackRock European Equity Income Fund that appreciated around 9% and the BNY Mellon Long Term Global Equity Fund that rose around 8%. The First Sentier Dividend Advantage Fund declined 0.70% although this is worth mentioning as it was relatively steady during a volatile quarter in Asia.

Our bond funds declined weighed by the market concerns. We have the Loomis Sayles Multisector Income Fund and the PIMCO Diversified Income Fund that are focused on higher income generation strategies in the developed markets. Over the year, they have performed respectably in a weak bond market. In Asia, we have the BlackRock Asia Tiger Fund that invests mainly in Asia corporate bonds which was affected by the China market sell-off. We will continue to hold this Fund for a recovery in Asia bonds as its yield around 6% looks attractive.

Looking ahead, we continue to view risk assets favourably and will maintain a tilt towards developed market equities. Following the Asia market sell-off, there is potential upside in the medium term. Near term, we expect volatility to linger until growth expectations in China stabilises and prefer to add later. Bonds will continue to face headwinds in 2022 although corporate bonds will benefit from earnings upgrades. We will maintain our focus on corporate bonds, focusing on the BBB / BB rated credit segments.

The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received. Individual performance may vary.

03 Nov 2021

Stay the Course

Global equities consolidated in 3Q21 as investors took stock of the coming tapering of the Fed’s QE program. Investors were more concerned about the regulatory tightening in China in certain sectors namely tutoring, gaming and property leading to a liquidity crisis in the highly indebted property sector. Investors panicked and speculated how much more damage these measures would do to the economy. The MSCI AC World Index declined around 1.5% with the pain largely confined to Asia equities where the MSCI AC Asia ex Japan Index corrected around 10%. The global bond market was flat even as the USD Treasury yield curve steepened. The market felt comfortable that the recent inflationary headwinds were transitionary, and the Fed would pace its tightening stance. Again, the pain was felt more in Asia credits particularly in China high yield bonds because of the events described above. The JPMorgan Non-Investment Grade Total Return Index (Asia HY bonds) declined 5.7% while JPM Investment Grade Total Return Index (Asia IG bonds) rose 0.41%. During the quarter, “Comfy Cruisin’” Global Portfolio Plus USD model portfolio and Global Portfolio USD model portfolio declined slightly around 0.60% and 0.10% respectively. The portfolios held around 50% in equities, 45% in fixed income and 5% in cash. Compared to the composite returns of the Global Equities and Global Bonds indices above, the GP Plus portfolio was slightly lower while the GP Portfolio was better.

Our equities holdings did better than their respective regional indices helped by their focus on developed markets growth equities. Our funds included the Franklin US Opportunities Fund and the Capital New Economy Fund that focuses on companies with firm earnings growth. In Asia, we have the First Sentier Dividend Advantage Fund that focuses on dividend paying companies. Although its returns were negative in 3Q21, it vastly outperformed regional indices and declined around 2% compared to the MSCI Asia ex Japan Index’s 9% decline. We continue to like these funds for their sound approach in stock selection. Our developed market bonds funds also did better than regional indices helped by their focus on corporate bonds that outperformed government bonds. We held the Loomis Sayles Multisector Income Fund and the PIMCO Diversified Income Fund for their focus on higher income generation strategies. On the other hand, the negative returns in the BGF Asian Tiger Bond Fund in 3Q weighed on the bond portfolio. The Fund invests mainly in Asia corporate bonds and was affected by the sell-off in China market bonds. Nevertheless, we believe that much risk has been discounted and Asia bond yields are looking attractive now. We will continue to hold the Fund and may add to it provided that market conditions stabilise.

We see the recent pull back in equities markets as temporary and remain fully engaged. We continue to favour equities over fixed income for its better potential returns in the low bond yield environment. In equities, we are focused on growth themes where earnings visibility is the best in this changing world. Around two-thirds of our equity exposure are in growth funds while the remaining one-third are in income equities as a balance in a barbell format. We stay invested in the equities funds mentioned above. Our view of the bond market is unchanged. We continue to expect the USD Treasury yield curve to steepen gradually. This is with the view that the recent inflationary spikes were transitionary and monetary policy will gradually tighten. Our strategy is to keep duration short and focus on corporate bonds in the BBB / BB segment where risk reward is better balanced. Asia bonds look attractive especially in the BB credit segment in China where bond yields are around 8% to 11%. We will wait for conditions to stabilize before adding fresh positions in Asia. We maintain our position in the BGF Asian Tiger Bond Fund.

We will monitor events closely and adjust our strategy where needed.

The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received. Individual performance may vary.

YTD Returns as of 30 Sep 2021.

19 Jul 2021

Hope into Reality

In 2Q21, Global Equities (referencing the MSCI AC World Index) rose 7.4%, driven by robust corporate earnings and continued liquidity support from central banks in the US and Europe. Global bonds (referencing the Bloomberg Barclays Global Aggregate Total Return Index) gained 0.98%, helped by a moderation in inflation expectations.

During the quarter, both “Comfy Cruisin’” Global Portfolio Plus USD model portfolio and Global Portfolio USD model portfolio made total returns of 4.7%. Both equities and bonds contributed positively with equities showing a larger outperformance, helped by a rebound in the growth funds.

The equity fund that stood out was the Franklin US Opportunities Fund, which invests in growth themes in the US such as semiconductors, enterprise software and healthcare. The other growth funds included in our portfolios are the BNY Mellon Global Equity Fund and the Capital Growth New Economy Fund, both with a bottom up approach to investing. In bonds, the best performer was the Loomis Sayles Multisector Income Fund, a fund which focuses on generating above average cash flows from different income sources. We also have the BGF Asia Tiger Bond Fund, an Asian focused credit fund, for yield pick-up.

The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

What’s next

Looking ahead, we continue to favour equities over fixed income.  Our equity investments continue to tilt towards growth themes where earnings visibility is the best in this changing world. We also expect the USD bond yield curve to steepen gradually.  Thus, our strategy is to keep duration short to mitigate our portfolio sensitivity to potential interest rates rises.

20 Apr 2021

Back on Track

In 1Q21, Global Equities (referencing the MSCI World Index) rose 4.9%, driven by an acceleration in vaccination programs and fiscal stimulus in the US. Global bonds (referencing the Bloomberg Barclays Global Aggregate Total Return Index) declined 4.5% corrected as yields rose. Our portfolios benefitted from being fully invested during this period with a tilt towards equities and -our moderate risk (“Comfy Cruisin’”) Global Portfolio Plus USD model portfolio and Global Portfolio USD model portfolio declined around 0.15% and 0.89% respectively.

Our equities holdings underperformed the 1Q21 market rally. The BNY Mellon Long Term Global Equities Fund and Franklin US Opportunities Fund, which we like for their focus on quality and growth stocks, lagged the rally driven by value stocks this year. With the strong rally in value counters, we expect investors to be more selective in their stock picking, which favours the bottom-up approach of these two funds.

Our bond funds outperformed declining global bond markets by keeping their duration short and focusing on credit, particularly in Asia. We had the BGF Asian Tiger Bond fund, which focuses on Asia corporates, and the Loomis Sayles Multisector Income Fund, that invests in corporate bonds globally. The funds’ strategies will help mitigate the drag from rising bond yields whilst maintaining above-average income streams.

digiPortfolio performance

The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received.

Individual performance may vary.

What’s next

Looking ahead, we continue to favour risk assets and will maintain a tilt towards equities. We are watchful of the rising bond yields although we expect this to peter out eventually, as longer-term inflation still faces structural headwinds such as disruptive technologies.

19 Jan 2021

A New Hope

Amid the tumultuous year in 2020, the funds-based digiPortfolios have made positive gains for the full year, following on a successful 2019. We achieved this by maintaining a well-constructed portfolio and focusing on high conviction fund selections.

During 4Q20, the portfolios were fully invested and benefited from the rally in equities and corporate bonds. Some of the notable performers in equities were the Capital New Economy Global Equity Fund, a fund that focuses on growth stocks and is aligned with our DBS CIO Barbell theme. It rose around 16.5% in 4Q compared to the equity market’s 14% return. Meanwhile, the FSSA Dividend Advantage Fund rose around 20%.

Within fixed income, we maintain our favourable view on corporate bonds that we expect will drive bond market returns as the economy recovers. We continue to hold the Natixis Loomis Sayles Multisector Income Fund which rose around 6% over Q4 while the PIMCO Diversified Income Fund appreciated around 4.5%.

digiPortfolio performance

The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

What’s next

Looking ahead, we expect risk assets, namely equities and credit, to appreciate in 2021. The backdrop for risk taking is favourable – ultra easy monetary policies, less confrontational US-China politics and a viable cure for Covid-19. Heading into Q1, we are comfortable with our fund holdings and will make changes when appropriate.

20 Oct 2020

On the Mend

Updates on Global Portfolio

Global equities and bonds continued to trend up in 3Q20, driven by monetary stimulus as countries progressively emerged from Covid-19 lockdowns.

digiPortfolio performance

The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

In 3Q20, the Global Portfolio has performed well, and key contributors included AB Low Vol Fund and BNY Mellon Long Term Global Equity Fund. The former benefited from its overweight position in technology (28%). The latter benefited from its overweight position in US equities and technology, investing in growth stocks in line with secular themes we are positive on.

What’s next

Our longer-term view remains unchanged, and we continue to favour Funds investing in growth sectors that are the key beneficiaries in this changing world. We’re adding the Capital New Economy Fund for its participation in secular growth themes globally, aligned with our CIO’s focus on growth sectors. We will adjust the bonds portion to increase our exposure in emerging market bonds when the opportunities arise. We will remain invested to benefit from this policy tailwind and will monitor events closely and adjust our course if needed.

Updates on Global Portfolio Plus

Global equities and bonds continued to trend up in 3Q20, driven by monetary stimulus as countries progressively emerged from Covid-19 lockdowns.

The portfolio benefited from our overweight positioning in Asian and US equities, which were the best performing markets within equities. For fixed income, our preference for corporate credit over government bonds continued to fare well as corporate bonds outperformed government bonds over the quarter.

digiPortfolio Performance

The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

In 3Q20, the Global Portfolio Plus has performed well and key contributors to performance included Franklin US Opportunities Fund and First State Dividend Advantage Fund. The former was driven by its large tilt in growth and technology stocks with holdings in key industry leaders while the latter benefited from its overweight position in China.

What’s next

Our longer-term view remains unchanged, and we continue to favour US and Asia for their stronger growth potential and attractive sectors. Apart from adding the Capital New Economy Fund for its participation in secular growth themes globally, we will switch into the UBS All China Fund to leverage the funds flexibility to invest in both the China A and H share market. We will remain invested to benefit from this policy tailwind and will monitor events closely and adjust our course if needed.

13 Jul 2020

Capitalizing on the market rebound

Unprecedented monetary support measures from central banks worldwide have led to a sharp recovery in global markets in the 2Q of 2020. Equity markets across the US, Europe and Asia Pacific have recorded double digit returns in the recovery.

Similarly, our portfolios have rebounded strongly as we have remained invested during this period of volatility. Our equity positions, particularly our overweight in the US and Asia equities, were the main drivers of returns.

digiPortfolio performance

The above table is based on the Indicative Model Portfolio gross of fees returns.
Individual performance may vary.

What’s next

Looking ahead, we continue to prefer the US and Asia ex-Japan equities for their stronger economic prospects when compared to Europe and Japan. In fixed income, we are mainly invested in developed market corporate bonds for stability and yield pick up over government bonds. While we remain cautious over valuations, the weaker inflation environment combined with low policy rates should justify higher asset prices.

With equities indices catching up, bond spreads tightening faster, it appears that fear of missing out (FOMO) has re-emerged over the simple fear of losing money. Given the strong rebound seen over the second quarter though, a near-term market consolidation in the months ahead would not be surprising. In such a case, we will again make use of the opportunity to make switches where appropriate.

19 May 2020

Keep calm and practise dollar cost averaging

The market has seen a volatile few months with the concerns over the covid-19 crisis persisting. Global equities (based on the MSCI AC World Index) declined 25% while global corporate bonds (based on the Bloomberg Barclays Global Aggregate Credit Index) declined 4.7%. The economic indicators are already pointing to a global recession as social distancing measures limit activity. To counter the negative impact, policy makers worldwide have implemented massive stimulus programs. Our longer term view is more attractive since bond yields have risen and equities valuations have reverted to the longer term averages.

digiPortfolio performance

The above tables are based on the Indicative Model Portfolio gross of fees returns
Individual performance may vary.

Our portfolios have remained relatively resilient, they are globally diversified and we remain comfortable in our mutual funds holdings. In equities, we favour the US and Asia equities. The latter for its higher growth and cheaper valuations relative to its DM peers. In fixed income, we favour the more stable developed market investment grade credit during this period of volatility and also Asia for its attractive yield and stronger fundamentals in the emerging market world. We will switch our holdings in Goldman Sachs EM Corporate Bond Fund into the Blackrock Asian Tiger Bond Fund, our preferred fund in Asia bonds.