In 1Q23, both equities and fixed income markets rebounded by 7.3% and 3.0%, respectively, on expectations of a less hawkish US Fed. The market rally was led by growth equities and long-dated government bonds, both responding to the drop in bond yields.

During the quarter, the Income portfolio returned +1.8% (in USD) and +1.3% (in SGD terms) in addition to the income distributions, with all positions contributing positively. Top contributors were a global dividend-oriented fund – Fidelity Global Dividend Fund and a global multi-asset fund – First Eagle Amundi Income Builder. Furthermore, the drop in yields also benefited our fixed income allocations – PIMCO GIS Income Fund and Allianz Global Opportunistic Bond Fund.

The portfolio continues to be invested in income-oriented mixed asset funds for its diversified income and income-oriented equities funds for higher income streams and moderate capital growth. A large portion of the portfolio is in bonds for the steady and consistent coupon streams. We estimate an underlying income stream to be over 4.5% p.a., supported by higher yields from fixed income and income equities.

Looking ahead into 2Q23, we maintain an overall neutral stance on equities with a tilt towards Asian equities. We continue to stay overweight on fixed income with a quality bias towards US Treasuries and Developed Market Investment Grade corporate bonds. As such, we initiated a new position in Ninety-One Global Multi Asset Income fund, which is a cautious mixed-asset fund with a bias on quality and downside protection.

While market volatility may remain high as the Fed navigates through their policy stance, 1Q23 was a testament to staying invested in the market. In such an environment, we remain fully engaged with focus on building resilience and quality in our portfolios.

Income Portfolio		Comfy Cruisin
1Q 2023	USD	1.8%
	SGD	1.3%

Figures as of 31 March 2023.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

During 1Q23, Singapore short term investment grade corporate bonds, as represented by the iBoxx SGD Investment Grade 1-3 year Total Return Index rose 0.6%, helped by a drop in the underlying government bond yield. The Save Up portfolio, returned around 0.6% in addition to the income distributions with all holdings contributing positively.

The SaveUp model portfolio characteristics are as follows: portfolio yield-to-maturity stood at 5.1%, with a duration of about 2.5 years. It has an average credit rating of A with high yield allocation below 10%, supported by our focus on quality.

To position for 2Q23, we have initiated two new positions: (1) DBS CIO Liquid+ Fund, which provides exposure to global high quality corporate and government bonds, offering stability and yield with a duration of 1.8years and a portfolio yield of 5.0%; and (2) PIMCO GIS Income Fund, which is a global diversified fund focused on generating income through diversified fixed income sources. Currently, the fund has a duration of 3.5 years and has a yield of 8.1%. We exited Fullerton SGD Income and Nikko AM Shenton Short Term Bond Fund, to fund the above positions and diversify our exposure from Asia to Global Fixed Income.

Going forward, risk assets could remain volatile as the Fed navigates persistent inflation headwinds and rising financial stability risks. As such, we focus on building resilience and quality in the portfolios. Hence, we stay fully invested with a quality bias towards US Treasuries and developed market investment grade corporate bonds.

SaveUp Portfolio		Slow n’ Steady
1Q 2023	SGD	0.6%

Figures as of 31 March 2023.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

Over 1Q23, global equity and bond markets made positive returns amid negative news headlines concerning the collapse of Silicon Valley Bank in the US and Credit Suisse’s takeover by UBS. For example, the MSCI All Country Total Return World Index (global equities) returned +7.3% while the Bloomberg Barclays Global Aggregate TR Index (global bonds) returned +3.0%. This was supported by still sound economic data while the market has also started to price in monetary policy easing from the US Fed.

The Global USD digiPortfolios benefited from the global market recovery across most asset classes and enjoyed a strong rebound. The allocation to gold miners also continues to do well as gold prices rallied +8.7% over the quarter. On Fixed Income, we did the right move to increase the fixed income allocation at the end of last quarter, especially the addition to US Treasuries.

Given the strong equity market rebound, we are taking the chance to make some adjustments to the asset allocation. For equities, we trimmed our U.S. equity exposure to increase the allocation to China A shares as we see the recent healthy consolidation in Chinese equities as an opportunity to add. For Fixed Income, we reduced the shorter-duration corporate bond allocation to further increase US Treasuries and extend duration from 4.4 years to ~4.8 years. Given rising recession concerns, we maintain a defensive tilt in the portfolios, staying neutral on equities while increasing our allocation to lower risk assets such as government bonds and investment grade corporate bonds.

Global Portfolio		Slow n Steady	Comfy Cruisin	Fast n Furious
1Q 2023	USD	2.8%	4.7%	5.9%

Figures as of 31 March 2023.
The above table is based on the Indicative Model Portfolio gross of fees returns. Individual performance may vary.

Along with most developed markets, Asian equities and Singapore bonds saw a rebound over 1Q23, with Asian equities (based on MSCI AC Asia ex. Japan Index) rising by +3.6% and Singapore bonds (based on iBoxx ABF Singapore Total Return Index) rising by +2.1%. In line with our expectations, North Asian markets outperformed ASEAN, although China did see a consolidation over February and gave back some of the gains.

For the Asia SGD digiPortfolios, the move made at the end of last quarter to further cut our Indian equity exposure panned out correctly as Indian equities fell by -6.9% over 1Q23. The move to increase the fixed income allocation also contributed positively. We continue to maintain a sizeable allocation to SG REITs as the segment saw a strong rebound on the back of lower US 10-year US Treasury bond yields. Given rising concerns over slowing economic growth and the US Fed softening its initial hawkish stance, we think that broadly speaking SG REITs could likely stay supported. On the other hand, banks may potentially face net interest margin pressures should interest rates continue to trend lower. As such, we trimmed our position in the Nikko AM Singapore STI ETF given that SG banks constitute almost 48% of the exposure.

Lastly, we maintain our overweight allocation to Chinese equities as we expect earnings growth recovery coupled with still cheap valuations to support further upside potential over the coming months. The removal of Covid-related lockdowns, reopening of the border and resumption of commercial activities in China should likely support China's economic recovery this year.

Asia Portfolio		Slow n Steady	Comfy Cruisin	Fast n Furious
1Q 2023	SGD	0.3%	0.3%	0.3%

Figures as of 31 March 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.