In Q3 2023, global equities (MSCI AC World Index) and global bonds (Bloomberg Global Aggregate Bond Index) corrected by -3.4% and -3.6%, respectively, as economic resilience reiterated a ‘soft-landing’ scenario with the US Fed embracing a ‘higher for longer’ policy stance.

The Income portfolio (USD-denominated) declined -3.4% based on price returns, weighed down by market volatility. This was partly mitigated by income generation from portfolio investments of ~4.8% p.a. or 1.2% per quarter.

In Q3 2023, our exposure to global quality equities fund - AB Low Volatility Equity Fund, our newly added cautious multi-asset fund - Ninety-One Global Multi-Asset Income and our diversified aggregate fixed income fund - JPM Income Fund, added value against market volatility. On the other hand, Asian equities fund - FSSA Dividend Advantage Fund and Asian credit fund - BGF Asian Tiger Bond, were the largest detractors in the portfolio.

As of end-September 2023, the portfolio’s allocation is approximately 44% in global equities and 53% in global bonds. Within equities, the focus stays on dividend-oriented funds with stable cash flow generation (average dividend yield 3.0%). We lean towards higher quality investment grade bonds, with an average credit rating of A and a yield-to-maturity of 6.5%.

Looking ahead into Q4 2023, we view the recent surge in yields as an opportunity to allocate towards quality fixed income. We are upgrading fixed income to an overweight with a focus on developed market high quality corporate bonds. Hence, we initiated a new position in Schroder Global Credit Income Fund, which is a globally diversified quality fixed income fund (average credit rating: BBB+) with a yield-to-maturity of 7.4%. Additionally, we maintain an overall neutral stance on equities with a focus on quality asset, as there will be headwinds for equities with poor balance sheets particularly in this high interest rate environment.

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’
Q3 2023	SGD	-3.3%
	USD	-3.4%

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

In Q3 2023, the 2-year US-Treasury bond yields rose further from 4.9% to 5.1%, as economic resilience reiterated a ‘soft-landing’ scenario with the US Fed embracing a ‘higher for longer’ policy stance. The increase in yields caused the overall bond market (Bloomberg Global Aggregate Bond Index) to drop by -3.6% in the quarter.

On the other hand, Singapore short-term investment grade corporate bonds (iBoxx SGD Investment Grade 1-3 year Index) rose 0.9%, as regular income helped to offset the negative price effect of rising yield.

The SaveUp model portfolio, declined 1.7% based on price returns, with high-quality global government bonds and Asian credits dragging down on overall performance. This was partially mitigated by income generation from portfolio investments of ~3.6% p.a. or 0.9% per quarter. Given its shorter duration profile, the portfolio performed better than global bond markets.

As of end-August 2023, the SaveUp model characteristics were as follows: Portfolio yield-to-maturity stood at 5.8%, with a duration of about 2.7 years. It has an average credit rating of A with high yield allocation below 10%.

In Q4 2023, we have initiated a new position in Allianz Global Floating Rate Notes+ Fund, which is a short-duration (average duration: 0.1 year) high-quality (average credit quality: A-) portfolio of floating rate securities generating a yield of ~7.7% in USD-terms. We also added Fullerton Short Term Interest Rate Fund to align with our strategy’s focus on quality. The above was funded by exiting the Fullerton USD Income Fund. After the change, the overall portfolio quality is maintained at A-. The portfolio duration will drop to 1.9 years with an increased yield-to-maturity of 6.1% p.a.

Going forward, we believe that the spike up in yields continues to offer an attractive risk-reward to fixed income investors. As such, quality short-term fixed income yields are at a multi-decade high, providing higher expected returns than those offered by fixed deposits or SG T-bills.

SaveUp Portfolio		Slow n’ Steady
Q3 2023	SGD	-1.7%

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

Over Q3 2023, better than expected US economic data coupled with rising US Treasury issuance led to a spike in interest rates with the US 10-year bond yield rising from 3.8% at the start of the quarter to 4.6% by the end of the quarter. As a result, both global equity and bond markets saw a correction of -3.4% and -3.6% respectively.

The Global ETF Portfolio (Comfy Cruisin’) returned -2.7% (before dividends received) over 3Q23 due to the impact from equities and bonds. Within equities, the underweight stance in Europe equities contributed positively while the Asian equities continued to drag down on performance. For bonds, the portfolio’s focus on investment grade corporate bonds and shorter duration contributed positively.

Overall, while bond yields continue to stay elevated over the near term, we expect the Fed to likely keep rates on hold over the forthcoming months until recessionary signals emerge. As such, we have upgraded fixed income to an overweight stance given the attractive yields. We increased the bond allocation in portfolios, especially in developed market investment grade credit (iShares Global Corporate Bond ETF and newly initiated iShares USD Corporate Bond ETF). For equities, we exited iShares MSCI China A ETF and HSBC MSCI AC Far East ex Japan Index ETF and switched into the SPDR Emerging Asia ETF. This will help to broaden our Asian equity exposure to include India, as we expect Indian equities to be supported by long-term secular trends.

Global Portfolio		Slow n’ Steady	Comfy Cruisin’	Fast n’ Furious
Q3 2023	USD	-2.0%	-2.7%	-3.2%

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

Over Q3 2023, Chinese equities continued to struggle given the lack of near-term catalysts, while Asian REITs and Singapore government bonds were impacted by the spike in interest rates over the quarter. As a result, the Asia ETF Porfolio (Comfy Crusin’) returned -2.1% (before dividends received), dragged by its exposure to these segments.

In terms of portfolio actions, we reduced the Chinese equity allocation slightly (Xtrackers MSCI China ETF) to fund an increase on Indian equities (iShares MSCI India Climate Transition ETF), given its supportive long-term secular tailwinds. Although Chinese equities and Asian REITs have underperformed, we believe these have already been priced in and are currently trading at attractive valuations. Also, given the attractive yields, we have upgraded fixed income to an overweight stance and added to the Nikko AM SGD Investment Grade Corporate Bond ETF.

Overall, although Asian equities have trailed behind global markets this year owing to a slew of challenges which weighed on investor sentiment, we see that cautiousness has been priced into markets as Asian corporates are still expected to see double-digit earnings growth recovery over the next 2 years.

Asia Portfolio		Slow n’ Steady	Comfy Cruisin’	Fast n’ Furious
Q3 2023	SGD	-1.8%	-2.1%	-2.5%

Figures as of 30 September 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.