Understanding our Core portfolio investment strategy

Each Syfe portfolio has a different objective and a unique investment strategy that helps us pursue that objective.

Our Syfe Core portfolios are no different. As all-in-one portfolios for your wealth goals, Syfe Core is designed to maximise risk-adjusted returns, as measured by the Sharpe Ratio.

Introducing Syfe Core 

Syfe Core portfolios hold equities, bonds and gold in varying allocations. We use exchange-traded funds (ETFs) and individual stocks to represent each asset class to ensure that each portfolio is broadly diversified across sectors and geographies.

The key difference between each Core portfolio is their exposure to stocks and bonds, which in turn determines their overall risk level. Simply put, growth assets like equities have greater potential for higher returns, but also carry more risk. Defensive assets like bonds have lower return potential, but help moderate a portfolio’s overall risk and provide a more stable return stream.

In a nutshell, Core portfolios with a greater equity allocation (and lower bond allocation) will have higher potential returns, but with the addition of increased risk. This explains why Core Defensive and Core Equity100 are our lowest and highest risk Core portfolios respectively, and why Core Equity100 has a higher average annualised return as compared to the Core Defensive portfolio.

Choosing between the four Core portfolios very much depends on your investment goals, time horizon, and risk appetite. Here’s a quick guide to help you understand which portfolio may be right for you.

  • Core Defensive is a low-risk portfolio that’s ideal for conservative investors, or those approaching a particular financial goal
  • Core Balanced is a medium-risk portfolio that’s ideal for moderate investors with a mid-to long-term horizon
  • Core Growth is a high-risk portfolio that’s ideal for growth-oriented investors with a longer time horizon
  • Core Equity100 is a 100% equity portfolio that’s ideal for investors who are comfortable taking on higher risk for potential higher long-term returns

How we built Syfe Core

Our portfolio methodology for Syfe Core rests on three guiding principles:

  • Asset Class Risk Budgeting
  • Smart Beta
  • Stable asset allocation

Let’s delve into the details below.

Laying a foundation with Asset Class Risk Budgeting

Traditionally, asset allocation is thought of in terms of capital. If you have $1,000 and you allocate $600 to equities and $400 to bonds, you’ll have a classic 60/40 portfolio. Through periodic rebalancing, you’ll then strive to maintain this allocation of 60% equities and 40% bonds.

For our Syfe Core portfolios, we allocate portfolio weights using a process known as Asset Class Risk Budgeting – a risk-based method of portfolio allocation whereby the overall risk of the portfolio is distributed among various asset classes.

Risk budgeting is thinking about asset allocation in terms of risk. For instance, an investor does not earn a return from investing in stocks per se, but theoretically earns a return for assuming the various risks associated with a stock investment.

We can illustrate this with our Core Balanced portfolio which based on historical data, has an overall portfolio risk (as measured in standard deviation of returns) of 6.5% p.a.

Different assets have different levels of risk; equities are more volatile than government bonds for example. With a risk budgeting approach, our investment team will optimise the portfolio weights of each asset class to meet the overall risk budget of the portfolio while seeking to achieve the maximum Sharpe Ratio possible.

Using Smart Beta to add robustness to Core

Another facet of our Core portfolio strategy is our use of Smart Beta factors to further optimise equity allocations.

The equity component of all Core portfolios takes into consideration the following factors: growth and value, volatility and country exposure. These factors have been selected to generate better risk-adjusted returns.

Here’s a closer look at each Smart Beta factor.

  • Growth & Value. While the growth factor remains relevant given the fundamental shift to greater technology adoption globally, the recent rotation to value should not be ignored. We tilt our equity selection to both growth and value stocks by including the tech-heavy ETFs , which add exposure to smaller-cap and value stocks, and allow investors to get access to stocks such as Apple, Facebook, Nike and Chipotle.
  • Volatility. The low-volatility tilt is achieved by using multiple sector ETFs and individual stocks – Consumer Staples, Healthcare, Utilities. These sectors have been chosen because they collectively generate the highest risk-adjusted returns for the lowest amount of volatility on a portfolio basis. Stock holdings include Mondelez, Johnson & Johnson and Duke Energy.
  • Country exposure. Our enhanced exposure to China and Chinese tech stocks represents a country tilt towards China, given the country’s robust growth potential and consumer spending trends. This provides exposure to some of China’s most important companies like Alibaba, Tencent, Baidu and Meituan.

Stable asset allocation

With Core portfolios, investors will find that their asset allocation is relatively stable. This is because the portfolios utilise risk parameters that are calibrated for a longer term risk horizon to reduce short term portfolio reflexivity, i.e. short term asset allocation changes.

For instance, Core Balance stays around a 40% equity allocation, regardless of market conditions. As the asset allocation is not designed to be fixed, there will still be minor variations in the portfolio allocation.

Given the stable asset allocation, Core portfolios are suited to a dollar-cost average (DCA) strategy. DCA is a system of investing consistently over time to build wealth, which is popular with many investors.

When you adopt a DCA strategy with Core portfolios, you’ll be able to accumulate more of your investments at lower prices when the market dips. As such, you’ll end up averaging out your overall investment costs.

Getting started

Syfe Core portfolios have no minimum investment balance and no lock-ins. You can set up as many Core portfolios as you prefer based on your goals. For example, you may invest in Core Growth for a long-term goal like retirement and choose Core Defensive for a shorter term goal such as a house downpayment.

You can also use Core portfolios as part of a Core-Satellite approach by pairing them with Syfe Select Themes that offer exposure to world-shaping megatrends.

Ready to start investing in diversified Core portfolios?