Abundant liquidity shores up CPF equities

Equity funds under the Central Provident Fund Investment Scheme were standout performers over the first quarter of the year, thanks to an improving global macroeconomic backdrop and abundant liquidity.

This asset class under the scheme's unit trusts segment posted average gains of 5.19 per cent - far outpacing the 0.3 per cent return for bond type and 3.57 per cent gains for mixed-asset portfolios (bonds and equities), according to Lipper, a fund research unit of Thomson Reuters.

The outcome over the one-year period ended March was no different, with equity products trouncing other asset classes with a gain of 8.02 per cent, outperforming the 4.40 per cent for bond type and 5.22 per cent for mixed-asset type.

For CPF's insurance-linked products, gains on equity type also came up on top.

However, over a three-year period, bond funds still managed to be the top performer in both the unit trust and insurance-linked products categories.

Prospects for equities continue to remain upbeat.

Mr Xav Feng, Lipper's Asia-Pacific research head, expects the surge in liquidity for riskier assets in global markets to be maintained as the United States Federal Reserve has said it may continue with its bond buying programme to keep interest rates down.

Last Wednesday, Fed chairman Ben Bernanke indicated that the US central bank is unlikely to change its course on loose monetary policy.

Meanwhile, the discussion on whether the Fed is likely to end the quantitative easing programme by the end of this year or next year continues. That may be good news for the bulls as it gives global markets more time to bask in the flood of cheap money.

All that has had a positive impact on most markets around the world and on funds registered in Singapore, whose portfolios are not just domestically focused but are also spread across various regions.

In fact, for the first quarter this year, equity investments of Singapore-registered funds saw a net inflow.

"This signals that investors in Singapore have gained some confidence and that investors' appetites for risk may shift in the next few quarters," Mr Feng said.

Having said that, he cautioned that there are still external risks and global economic developments that investors should be mindful of.

On the back of rising optimism for equities, the bond market has fared poorly, posting negative returns over the period.

The Citigroup World Government Bond Index fell 2.8 per cent for the quarter. The 10-year US Treasury ended the quarter at a yield of 1.8520 per cent versus 1.7565 per cent on Dec 31 last year.

Overall, funds under the CPF investment scheme eked out average gains of 4.06 per cent over the first quarter of the year.

This marks the third straight quarterly gains posted by these funds, which essentially involve 199 units trusts and 179 investment-linked insurance products, said Lipper.

Investors who ploughed their savings into unit trusts under this scheme earned a 4.51 per cent average gain while insurance-linked investments would have provided them with gains of 3.76 per cent over the first quarter.

"The combination of strong stock market performance, especially in the United States, and an improved global economic environment has positively propelled sentiment in the first quarter of 2013," said Mr Mike Seng, associate director of Investment Management Association of Singapore.

"With strengthening optimism and easing inflation, it is important that investors adopt a holistic, diversified approach to investing, focusing on the long term," he said in the statement.

anitag@sph.com.sg

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