With short-term global uncertainty looming on the horizon, a panel advising on our simulated investment portfolios has started to take a more cautious approach.
Steps are being taken to remove some risk from the three simulated portfolios under the Save & Invest Portfolio Series, by increasing cash levels.
All three portfolios have enjoyed robust performance, thanks to diversification in recent months. In September, they posted gains and beat their benchmarks.
In the 11th part of the series introduced by The Sunday Times in January, we look at the performance of the portfolios, which went live on Jan 18 and are being tracked each month until next year.
The investors are 25-year-old Shona Chee, a communications manager, entrepreneur Getty Goh, 38, who is married with two young children, and retiree Wang Moo Kee, 61.
Photos: The Straits Times
The Portfolio Series does not involve actual money as it is intended for illustration and education only.
All three portfolios are limited to instruments listed on the Singapore Exchange - to keep them simple, accessible and easy to monitor - and to Singapore Savings Bonds, which can be bought via ATMs.
While there are similarities in the three portfolio holdings, the allocation for each profile differs, depending on the individual's risk-return objectives and preferences.
Each portfolio has a different benchmark that best reflects the portfolio mix. The simulated portfolios are constructed by CFA Society Singapore (CFAS) for an ideal investment horizon of five to 10 years.
All three portfolios registered gains last month. Ms Chee's portfolio was up 1.47 per cent for the month, beating the benchmark (1.03 per cent) by 0.44 percentage point.
Mr Goh's portfolio advanced 1.32 per cent, beating the benchmark (1.21 per cent) by 0.11 percentage point while Mr Wang's portfolio was up 1.18 per cent, beating the benchmark (0.91 per cent) by 0.27 percentage point.
Most of the outperformance by all three portfolios came from the Singapore equities allocation, driven by Sats and SingPost with both appreciating more than 6 per cent.
The global ETF allocation contributed positively to both Ms Chee's and Mr Wang's portfolios, mainly owing to the Asian ETF exposure. However, Mr Goh's global ETF allocation was dragged down by the Lyxor Commodity ETF exposure, leading to a slight underperformance against the sub-sector benchmark.
A-Reit had another strong month, which contributed positively to all three portfolios' Reit exposure. Ms Chee's portfolio benefited the most as she holds only A-Reit. Mr Goh's and Mr Wang's Reit allocations underperformed the Reit benchmark slightly because of their CMT holdings.
For the bond allocation, only Mr Wang's bond holdings beat the iBoxx ABF Singapore Bond benchmark, driven by a good month for Frasers Centrepoint and OCBC perpetual shares.
In view of the potential geopolitical risks, the CFAS panel has decided to gradually reduce the risk in the portfolios ahead of the United States presidential election next month.
The CFAS panel said: "We intend to raise cash levels in all three portfolios to approximately 20 per cent by the end of October. In this regard, we have decided to start by taking profit on two positions in Mr Wang's portfolio - selling half of the Sats position and the whole of the China ETF position."
This is because Mr Wang's cash level was very low compared with Ms Chee's (8 per cent) and Mr Goh's (7.5 per cent) portfolios. The panel intends to continue taking profit on positions in all three portfolios over the next few weeks to raise cash levels.
On Ms Chee's intention to invest an additional $20,000 in her simulated portfolio, the panel has advised her to hold it off for now.
"In the light of the uncertain environment and the fact that we are in the process of de-risking the portfolios, we have advised her to hold off on investing fresh funds till after the US elections," said the panel.
The panel noted that September was a "see-saw month" for financial markets on several counts. They include a highly anticipated US Federal Reserve rate decision, European Central Bank meeting, US presidential election debate, Opec negotiations, news flow around Deutsche Bank's financial woes and economic data from the US and China.
Still, on the whole, risk assets survived the turbulence and global equities (developed and emerging markets) managed to close the month 0.44 per cent higher.
Emerging markets were relatively flat while the biggest winner was Asia ex-Japan, gaining 1.4 per cent.
Looking ahead, Asia seems to be a sweet spot of opportunity, said the panel. Asian equities' 1.4 per cent gain last month also lends support to the argument that there is value to be found in the region's markets. And Asian assets will continue to be supported by an easing bias from regional central banks.
In China, the A-shares closed the month lower while H-shares gained 0.4 per cent. "Many sceptics of Chinese data may not be convinced about the quality of economic recovery and 'new economy' sectors have lost some steam. Nevertheless, selective investment opportunities do exist in China and relative valuations of H-shares (versus A-shares) remain attractive," the panel said.
It noted that gold slid during the month but ended 0.5 per cent higher. "Regardless of price direction, an allocation to gold (percentage depending on the investor's risk profile) in portfolios is always deemed as a good insurance policy against global uncertainty and market volatility," it advised.
Save & Invest Portfolio Series
The Save & Invest Portfolio Series features the simulated portfolios of a young working adult, a married couple with two young children and a retiree over a 12-month period.
It guides retail investors in basic investment techniques and on how to build a portfolio in line with their financial goals and risk tolerance. This initiative involves the Singapore Exchange collaborating with CFA Society Singapore and MoneySense, the national financial education programme.
The CFAS panellists who track the simulated portfolios are Mr Phoon Chiong Tuck, head of fixed income at Lion Global Investors, Mr Jack Wang, partner at Lexico Capital, Mr Praveen Jagwani, chief executive of UTI International, Singapore, and Mr Simon Ng, CEO of CCB International (Singapore).
This article was first published on Oct 09, 2016.
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