digiPortfolio Updates and Market Insights
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Who moved my investment portfolio?
Keep up-to-date with quarterly videos that cover hot topics in the investment world and views that are driving your investment portfolios.
The Home Stretch for Q4 2023
Interest rates are staying higher for longer. Watch our experts share more about what you can do to benefit from it, going into the year end.
The Next Yield Play
Over 3Q23, both global equities and global bond markets corrected by -3.4% and -3.6% respectively on concerns over rising interest rates.
Looking ahead into 4Q23, we maintain a neutral view on equities but upgrade bonds to overweight with a focus on investment grade corporate bonds.
Income Portfolio (Funds-based)
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.
SaveUp Portfolio (Funds-based)
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.
Global Portfolio (ETF-based)
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.
Asia Portfolio (ETF-based)
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.
Global Portfolio and Global Portfolio Plus (Funds-based)
In Q3 2023, both global equities and global bonds corrected by -3.4% and -3.6%, respectively, as ‘higher for longer’ narrative dominated the market causing US 10-year bond yields to climb from 3.8% to 4.6% over the quarter. This caused bond prices to decline and equity valuations to re-adjust to the new terminal rate expectations.
Global Portfolio
During the quarter, Global Portfolio Comfy Cruisin’ had a price return (excluding fund dividends received) of -3.2% (in USD) and -3.2% (in SGD). Our allocation to a diverse segment of equities (low-volatility, high quality and income) across the globe and high-quality bonds helped navigate the markets effectively.
Most funds within the portfolio detracted in performance due to the large drawdown in markets. However, allocation to global quality equity fund - AB Low Volatility Equity Portfolio and high-quality fixed income funds - Allianz Global Opportunistic Bond and PIMCO GIS Income, added buffer against negative market movement. We continue to see the benefit of active duration management and credit qualify in our fixed income allocation.
As of end-September 2023, the portfolio’s allocation is approximately 50% in global equities and 47% in global bonds. Within equities, focus remains on quality growth equities with stable cash flow generation. Fixed income is also targeted towards higher quality investment grade bonds, with an average credit rating of A, yield-to-maturity of 6.1% and an average duration of 4.9 years.
Looking ahead into Q4 2023, we view the recent spike-up in yields as an opportunity to shift our fixed income allocation from government bonds to high-quality developed market bonds and hence, we reduce our allocation in Allianz Global Opportunistic Bond to add towards PIMCO GIS Income Fund. After the change, the portfolio yield-to-maturity increased to 6.5%, while maintaining the same duration and credit rating profile. We also maintain a neutral stance on equities with a focus on quality asset acknowledging the headwinds for companies with poor balance sheet in this high interest rate environment.
Global Portfolio Plus
During the quarter, Global Portfolio Plus Comfy Cruisin’ had a price return (excluding fund dividends received) of -3.2 % (in USD) and -2.8% (in SGD). Our allocation to a diverse segment of equities (low-volatility, high quality and income) across the globe and high-quality bonds helped navigate the markets effectively.
Due to the large drawdown in market, most funds within the portfolio detracted in performance, with growth equity fund giving back some of their returns from 1H 2023. Being said, our allocation to global quality (AB Low Volatility Equity Portfolio), US value (Natixis Harris US Value Equity), Japan equities (Nikko Japan Dividend Fund), and high-quality fixed income (Allianz Global Opportunistic Bond) added relative value and provided buffer against market movement. We continue to see the benefit of active duration management and credit qualify in our fixed income allocation.
As of end-September 2023, the portfolio’s allocation is approximately 50% in global equities and 47% in global bonds. Within equities, the focus continues to remain on quality growth equities with stable cash flow generation. Our fixed income is also targeted towards high-quality investment grade bonds, with an average credit rating of A, yield-to-maturity of 6.3% and an average duration of 5.1 years.
Looking ahead into Q4 2023, we view the recent spike-up in yields as an opportunity to shift our fixed income allocation from government bonds to high-quality developed market bonds and hence, we are reducing our allocation in Allianz Global Opportunistic Bond to add towards Schroder ISF Global Credit Income Fund, which is a diversified credit fund with a large allocation to investment grade credit. To continue to drive portfolio quality, we also exited our position in PIMCO GIS Diversified Income, which has performed well for us during the year. After the change, the portfolio yield-to-maturity increased to 6.5%, while maintaining the same duration and credit rating profile.
In equities, we maintain a neutral stance with a focus on quality asset acknowledging the headwinds for companies with poor balance sheet in this high interest rate environment. Overall, we are cautiously optimistic on global economy and hence, maintain a balance between defensive and growth investments.
Q3 2023 | Slow n Steady | Comfy Cruisin | Fast n Furious | |
---|---|---|---|---|
Global Portfolio | SGD | -2.9% | -3.2% | -3.0% |
USD | -2.5% | -3.2% | -3.1% | |
Global Portfolio Plus | SGD | -3.0% | -3.0% | -3.5% |
USD | -2.8% | -3.2% | -3.9% |
Figures as of 30 Semtember 2023.
The above table is based on the Indicative Model Portfolio gross of fees returns and excludes dividends received. Individual performance may vary.
Market Insights
Timely articles addressing current market events.
digiPortfolio: 2022 in review
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.
Staying diversified amidst China panic
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. In next week’s DBS NAV insights newsletter, we explore dollar cost averaging as an investment principle that we would advocate during choppy markets.
This article was first published in DBS NAV insights, a weekly subscription-only newsletter.
Navigating the Russia-Ukraine crisis
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.
Sign up for DBS NAV Insights, our weekly investment newsletter, to stay updated on views from our experts at the DBS CIO office and DBS Group Research.
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