The initial months of 2023 brought concerns of a banking crisis, recession fears, and unprecedentedly high rates. However, the markets continued to showcase their unpredictability. Against all anticipations, equities witnessed a significant increase during this period, with major tech stocks marking a notable comeback. On the other hand, global bond markets registered muted returns.

With this backdrop of global market trends, let’s delve into an in-depth review and analysis of our portfolios’ performance for H1 2023.

• Core Portfolios: All Portfolios in the Green
• REIT+: The Leader in S-REITs Investment Space
• Income+: Delivering Strong Payout Yields since Inception
• Thematic Portfolios: Disruptive Technology Leads with over 37% YTD
• Cash+: Projected Returns Increased to 3.7% p.a.

Core Portfolios: All Portfolios in the Green

Performance Spotlight Our core portfolios – Core Equity100, Core Growth, Core Balanced, and Core Defensive – have notched up impressive year-to-date returns of +15.9%, +11.4%, +7.0%, and +4.4%, respectively. On a relative basis, there was slight underperformance compared to benchmarks during the year’s first seven months, primarily due to a conscious defensive allocation in our portfolios. When we step back to take in the panorama of a five-year horizon, it is clear that all our four core portfolios have either matched or outshone their respective benchmarks. Compared to peers, the Core Equity100 portfolio continued its outperformance this year.

The Bright Spots As the tech sector emerged back as the key return driver in the equity markets this year, our allocation to the growth factor via QQQ (Invesco QQQ Trust Series 1) has been the primary contributor to performance, especially for Core Equity 100 portfolio. This was followed by our allocation to broad US equity markets, specifically RSP (Invesco S&P 500 Equal Weight ETF) and CSPX (iShares Core S&P 500 UCITS ETF). Additionally, our allocation to GLD (SPDR Gold Trust) has also played a part in enhancing the performance.

The Laggards With the Federal Reserve hiking up the rates throughout the first half, defensive sectors – including XLU (Utilities Select Sector SPDR Fund), and XLV (Health Care Select Sector SPDR Fund), as well as specific yield instruments, found themselves lagging behind, delivering somewhat subdued returns year-to-date.

Looking ahead Following our systematic optimization process, the core portfolios are geared towards more defensive sectors like consumer staples over cyclical ones like financials. This process also emphasises emerging market factors, leading to an increased exposure to Chinese equities that stands to capitalise on the country’s recent positive economic policy shifts. Our refined portfolio construction, therefore, reflects a strategic shift towards defensive sectors and higher allocations tied to emerging market opportunities.

REIT+ : The Leader in S-REITs Investment Space

Performance Spotlight Our REIT+ (100% REITs) portfolio has displayed a credible performance with a +5.6% total return year-to-date, outperforming the iEdge S-REITs Leaders Index which posted a 3.9% return year-to-date. This puts us at a notable year-to-date outperformance of 1.7%.

Looking further back, the REIT+ (100% REIT) portfolio has shown impressive resilience, delivering a 5-year annualised return of 4.3%, compared to the benchmark’s return of 3.4%. This consistent performance places our cumulative returns ahead of all major REIT ETFs in Singapore, both on a year-to-date and since inception basis.

Driving factors for tracking above benchmark Although designed to track its benchmark index, REIT+ (100% REIT) goes a step further. A key part of our approach has been the implementation of several added efficiencies.

1)  Incorporate additional liquidity screenings. We have higher weightings to S-REITs with better liquidity, helping to minimise market swings. 

2) Optimise returns. We scrutinise each S-REIT within our portfolio to maximise risk-adjusted returns. 

3) Automatically reinvest dividends. When S-REITs distribute dividends, they’re promptly reinvested, driving higher potential returns over time.

These strategies not only provide a performance edge over the benchmark but also outshine other ETF products in the S-REIT space. 

Looking ahead Over the past year, Singapore REITs have been severely impacted by interest rate hikes, plunging them close to 5-year lows. As we near the end of the rate-hiking cycle, greater clarity and confidence are on the horizon. This suggests that the most challenging times for REITs may be behind us.

Income+: Delivering Strong Payout Yields Since Inception

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Performance Spotlight Syfe Income+ Preserve and Enhance were launched in Q2 2023, in partnership with PIMCO. As we turn our eyes to performance, Syfe Income+ Preserve delivered a total return of +0.3%, and Income+ Enhance posted -0.1% from inception to 31 July 2023. Both Income+ portfolios have thus far outperformed the reference benchmark. While the total returns of the Income+ portfolios have been modest so far, it’s vital to note that the strategies have only been in action for a single quarter. Keeping our eyes on the long-term horizon is essential in navigating the path to investment success.

Key contributor was allocations to a versatile, multi-sector fixed income fund. The main detractors were Asian Investment Grade Fund and Asian High Yield Fund. Both funds boast attractive income yield, but short-term performance was impacted negatively by soft economic data from China.

Income+ has delivered on payout yield One of the main investment objectives of Syfe Income+ portfolios is to offer sustainable and diversified income sources. In Q2, the Syfe Income+ Preserve portfolio achieved an annualised payout ratio of 4.2%, and Syfe Income+ Enhance delivered an annualised payout ratio of 5.6%. We anticipate that these payout levels will likely be sustainable. Currently, the underlying portfolio yields, as represented by yield-to-maturity, stand at 6.7% for Syfe Income+ Preserve and 8.4% for Syfe Income+ Enhance.

Looking ahead Moving into the latter half of 2023, fixed income appears to offer promising risk-reward prospects due to record high yields and potential capital appreciation with anticipated moderation in interest rates next year. Syfe’s Income+, steered by the forward-thinking investment insights from PIMCO – the world’s leading fixed income manager, serves as an excellent tool to seize the prime income opportunities in the market going forward.

Thematic Portfolios: Disruptive Technology Leads with over 37% YTD

Disruptive Technology As of 31 July 2023, our Disruptive Technology model portfolio has experienced a remarkable year-to-date surge of +37.6%. The recent debut of ChatGPT has reignited excitement for Artificial Intelligence. Breakthroughs in quantum computing, accelerating advancements in AI demonstrated by products such as ChatGPT, and the burgeoning applications of blockchain and cryptocurrencies, epitomise the transformative potential of disruptive technology. Despite the compelling long-term prospects, investors should exercise caution given the current elevated valuations.

ESG & Clean Energy Our ESG & Clean Energy model portfolio has made considerable gains, increasing by 8.6% in the first seven months of the year. The seismic shift towards green energy remains central to our strategy. What is interesting to notice is that regulatory scrutiny, once a predominantly European issue, has rapidly ascended the agenda in the U.S. and APAC markets. Adding ESG & Clean Energy themes into your investment portfolio  is not just about reaping the rewards of increased government and corporate spending. It also plays a crucial role in mitigating potential regulatory risks.

Healthcare Innovation Our Healthcare Innovation model portfolio has notched a return of 4.0% year-to-date as of the end of July 2023.  The healthcare sector has lagged the broader market this year — mostly because tech stocks have been stealing the show. However, the healthcare arena continues to present a compelling investment opportunity, driven by innovations in science and technology, ageing populations, and strong global market demand.

China Growth Our China Growth model portfolio gained 2.1% year to date. Following initial enthusiasm in Q1 due to the reopening, the market was subsequently let down by lukewarm economic figures. However, a remarkable shift in the government’s approach in July, with promises of robust support for the economy, sparked a resurgence in market optimism, propelling a 10% increase. As we move forward, Chinese equities remain a focal point, though investors should remain mindful of their inherent volatility.

Cash+: Projected Returns Increased to 3.7%

Through the volatility of the first half of this year, the projected returns for Cash+ have been consistently revised upwards as interest rates increased giving investors a safe way to improve the yield on their excess cash. 

We have increased the projected returns of Cash+ to 3.7%, which is one of the highest among similar cash management solutions in the market. Syfe Cash+ has been able to achieve its projected returns for the majority of the periods since 2022. Investors holding onto Cash+ over the last 12 months have enjoyed 2.4% net annualised returns, inline with our projected rate.

As we move into the second half of the year, investors can look forward to more options and flexibility for their cash management needs as we expand our suite of offerings to cater to their different liquidity and currency preferences.

Our Thoughts For Second Half 2023 

As we set our sights on the latter half of 2023, an air of optimism permeates our perspective on the global economy. We see a possible ‘soft landing’ scenario on the horizon, buoyed by resilient economic activity and softening inflation. The recent rate hike by the Fed in July, in our assessment, could potentially mark the end of the current rate hiking cycle, with any further cuts likely postponed until 2024. Against this backdrop, investment opportunities across various asset classes emerge, providing investors with compelling prospects for growth and income diversification. 

To find more: 2023 Mid-Year Investment Outlook: Odds Defying Growth in H1, Softer Landing in H2?