Despite a soft start of the quarter, global equities and bonds ended the quarter on a strong note. The quarter began with a sell-off in stocks as recession fears weighed on investors. Between 1 July and 5 August, the S&P 500 dropped by -7.5%. However, in the September 2024 FOMC meeting, the Fed shifted its focus towards supporting growth by cutting its key interest rate by 50 basis points (0.50%). This not only erased the losses but also propelled the S&P 500 to new all-time highs. In the final two weeks of the quarter, Chinese equities also surged, driven by optimism around potential policy support from the government.
This quarter highlighted the dynamic nature of markets and reinforced the importance of staying agile in response to changing conditions. It also underscored the need to adjust our portfolios periodically to align with evolving market trends but also the value of staying invested.
In this quarter, our managed portfolios delivered strong performance across the board
Syfe Core Portfolios: Outperforming & Upgraded for Better Long-term Growth
Source: Syfe, Bloomberg. As of 30 Sep 2024, in HKD. Syfe model portfolio performance net of fund level fees and may include point-in-time backtested historical data. Benchmarks: Equity100 (MSCI World, MSCI ACWI), Core Growth (S&P Target Risk Growth), Core Balanced (S&P Target Risk Moderate), Core Defensive (S&P Target Risk Conservative).
Performance Spotlight: Core Portfolios delivered another strong quarter of performance. Core Equity100 returned +6.1% in Q3, bringing the Portfolio’s YTD return to +18.4%. The Growth, Balanced, and Defensive portfolios posted quarterly returns of +6.45%, +6.76%, and +5.74% respectively, all outperforming their benchmarks, bringing their YTD returns to +14.73%, 11.10% and 8.30%.
The main driver of outperformance was the allocation to emerging market equities, particularly Chinese stocks. Following a bold 50 bps rate cut by the Fed in mid-September, China’s policymakers introduced a series of monetary and fiscal easing measures. As a result, Chinese equities saw a double-digit jump in the last two weeks of September.
Strategic allocation to gold also provided a boost to Core Portfolios. With increasing global uncertainty, gold acted as a safe haven, helping our Growth, Balanced, and Defensive portfolios stay strong. This demonstrates the value of diversifying investments across different asset classes for long-term success.
Looking ahead: Fed rate cutting cycles typically lead to rotations in stock performance, favouring certain characteristics over others. Based on past cycles, value stocks tend to outperform growth stocks, and mid-to-small cap stocks often do well.
Our Core Portfolios are positioned to include value and quality factors, as well as small and mid-cap stocks. These aim to drive superior long-term returns by integrating key strategic factors, improving diversification, and pursuing more sustainable performance.
Syfe Income+: Outshined in a Shifting Bond Market
Source: Source: Syfe, Bloomberg. As of 30 Sep 2024. Syfe model portfolio performance net of fund-level fees. Statistics are based on weighted fund allocations within each model portfolio. Please note that returns on the Syfe Collect Portfolio are net of Syfe management fees.
Performance Spotlight: The Fed’s rate cut in the third quarter pushed bond yields lower, with short-term Treasury yields experiencing the most significant declines. This decline in yields helped broad bond markets achieve solid gains.
Our Income+ Pure and Enhance portfolios delivered strong returns of +4.0% and +4.5% respectively, bringing their YTD performance to +4.9% and +7.1%. This YTD performance significantly outperforms the broad bond market, driven largely by our fund partners’ active management of duration, credit, currency, and country exposure.
Monthly Payout: Income+ continues to deliver on its promise of attractive payout yields. Both portfolios had pretty stable payouts throughout the last year or so, with their respective target ranges.
Looking ahead: Global bonds remain attractive even after the recent rally, with yields continuing to offer compelling value. As of 30 September, the yield on global investment-grade credit stands at 4.7%, significantly above the 10-year average yield of 3.4%. Economic indicators are also normalising—Core PCE inflation dropped to 2.7% in August, nearing the Fed’s 2% target.
With inflation easing, the Fed has room to lower interest rates further, which is good news for bond investors. This presents an opportunity for capital appreciation for bond investors, in addition to the attractive yields.
Thematic Portfolios: China Growth Portfolio Surged
Source: Syfe, Bloomberg. As of 30 Sep 2024, in HKD. Syfe model portfolio performance net of fund level fees and may include point-in-time backtested historical data.
Chinese equities captured investor attention in Q3, particularly towards the end of September. Government pledges for increased monetary and fiscal support sparked a dramatic market surge in the last two weeks of the month. Our China Growth portfolio, positioned in A-shares, internet sectors, and those sectors likely to benefit from policy support, performed exceptionally well, achieving a +14.95% return in Q3. This brings China Growth portfolio’s YTD return to +16.71%.
However, October saw some of those gains reversed as sentiment shifted. This raises the question: is China’s equity bull market sustainable? We believe there’s further upside potential, given attractive valuations and the fact that global fund managers remain significantly underweight in Chinese equities. However, investors should be aware that this market is often volatile, characterised by rapid upswings and downswings. Uncertainties remain, including the effectiveness of policy measures and the upcoming US elections. Therefore, investors should carefully consider their position sizes in this market.
The other three themes in our portfolio — Disruptive Technology, ESG & Clean Energy, and Healthcare Innovation — all delivered positive returns, keeping pace with the broader equity market. Disruptive Technology, in particular, continues to be a key area of focus for long-term investors.
Syfe Cash+ : Put Your Extra Cash to Work
Source: Syfe, Bloomberg. As of 30 September 2024, returns are in the base currency for each product. Cash+ Flexi net yield, adjusted to one decimal place, are based on annualised amortised yield estimates of underlying funds provided by the fund managers. This is not a guarantee of future performance. Cash+ Fixed rates are as of 01 November 2024.
Cash+ Flexi：Our Cash+ Flexi portfolio delivered steady and positive returns in the third quarter of 2024. The Cash+ USD Flexi portfolio generated +1.4% in Q3, bringing the YTD return to +4.2%.
As some local banks begin lowering deposit interest rates, Cash+ Flexi offers a compelling alternative for parking emergency funds or short-term cash needs. These portfolios invest in highly liquid, low-risk money market funds, allowing withdrawals within 1 to 2 working days.
Cash+ Fixed: In response to the current lower interest rate environment, Cash+ Fixed rates have been adjusted for Q3, now ranging from 3.9% p.a. for a 1-month term to 4.2% p.a. for a 3-month term. These rates remain competitive, surpassing those offered by traditional fixed deposit accounts and other cash products.
If you have funds you can set aside for a short period, Cash+ Fixed offers a compelling combination of attractive returns and peace of mind.
Time to invest your extra cash: Beyond your emergency savings and short-term needs, now is the perfect time to consider investing for the long term. With the Federal Reserve expected to cut interest rates further in 2024 and beyond, today’s attractive yields on cash may not last. History shows that various asset classes tend to perform well during periods of monetary easing, such as the one we’re entering now. To make the most of this potential opportunity and enhance your returns, consider reallocating some of your cash into investments like bonds or equities.
Our Thoughts For Q4 2024
With the US election approaching on 5th November, the race between Trump and Harris remains too close to call, as polls show both candidates running neck and neck. One potential outcome, a “Republican Sweep” where Trump wins the presidency and the Republican Party takes control of both the Senate and the House, could bring significant changes. Notably, Trump’s stance on tariffs may lead to global trade disruptions if enacted.
However, when looking beyond the short-term election risks, historical data from the past 75 years suggests that US elections typically have minimal long-term impact on financial markets. Market performance tends to be more closely tied to broader economic trends than to election outcomes.
