CPFIS funds down 1.45 per cent on average in 2nd Quarter

SINGAPORE - Market volatility in June caused funds under the Central Provident Fund Investment Scheme (CPFIS) to fall by 1.45 per cent on average in the second quarter of this year.

This was the first loss after three straight quarters of gains, said fund research firm Lipper on Thursday.

Lipper monitors the performance of unit trusts and investment-linked insurance products (ILPs) under the CPFIS.

The market sell-off was triggered by United States Federal Reserve chairman Ben Bernanke hinting in May and June that it might slow down its bond-buying programme. Concerned investors reacted by dumping bonds and stocks.

"With concerns that the Fed might start tapering its quantitative easing programme in the third quarter, both the equity and bond markets became very volatile in the second quarter," said Lipper's head of Asia-Pacific research, Mr Xav Feng.

The CPFIS was set up to provide CPF members with more investment options, which would be subject to market risks.

In contrast, the CPF Ordinary Account pays a return of 2.5 per cent while the CPF Special Account pays 4 per cent - these returns are guaranteed.

In the past quarter, the risks have come to the fore, causing CPFIS-included unit trusts to drop 1.2 per cent on average, while CPFIS-included ILPs declined 1.63 per cent.

Equity-linked CPFIS-included funds posted a second-quarter loss of 1.29 per cent.

Mixed asset-linked products, which invest in both equities and fixed-income securities, did even worse, falling 1.81 per cent, while bond-linked CPFIS-included funds plunged 2.15 per cent.

Even so, investors who have been holding on to these funds for the past year would have enjoyed gains.

For the year ended June 30, equity funds returned a gain of 12.42 per cent on average, while bond funds climbed 0.41 per cent.

Mixed asset-linked products rose 6.99 per cent on average during this period.

Over the year, the worst performers among the CPFIS-included funds were those related to natural resources, and gold and precious metals.

Funds linked to emerging markets such as Indonesia and the Philippines also performed poorly, said Mr Feng.

"They used to rally and they have enjoyed a very strong performance for the past few quarters. But the rumours (of Fed tapering) saw money being pulled out," he said.

Meanwhile, funds linked to Japan were among the star performers as they received a boost from "Abenomics", a series of economic reform measures announced by Japanese Prime Minister Shinzo Abe earlier this year, which cheered Japanese markets.

Mr Feng warned that global markets will continue to be volatile in the next six months.

His sentiments were echoed by Life Insurance Association representative Koo Chung Chang.

"Investors would do well to focus on and be guided by their long-term retirement needs when making investment decisions," Mr Koo said.

rachaelb@sph.com.sg

Get a copy of The Straits Times or go to straitstimes.com for more stories.