Following the most recent FED meeting in September and its “higher for longer” interest rate guidance, global markets have experienced volatility. How should you position your investment portfolios going forward? Ritesh Ganeriwal, Syfe’s Head of Investments and Advisory, will share a quick update on the markets and the performance of Syfe investment portfolios with you.
You can watch the full video here:
The Q3 Market Review
Following the most recent FED meeting in September and its “higher for longer” interest rate guidance, global stocks faced headwinds with the MSCI World falling by 3.4% in the third quarter of 2023.
The 10-year Treasury yield climbed to its highest since late 2007, reaching almost 4.9%. This has led to bond prices correcting by 3-4% in Q3 with the US treasuries and investment-grade bonds witnessing fluctuations across a range of quality and tenures.
The Singapore REIT market also mimicked the performance of global equities with the iEdge S-REIT Index declining by 4.2% in total return in Q3 2023.
Higher interest rates have led a lot of investors to move their investments into safer instruments such as money market funds and fixed deposit instruments. For long term investors, while the markets may remain uncertain in the near future, it is important to remain invested as well as average your investments during such periods to capitalize on market rebounds and generate inflation adjusted returns.
While the FED has indicated the possibility of another rate hike this year, the likelihood of FED carrying it through remains low with the market pricing in a 86% probability of no rate hike in November. We do however see the path to rate cuts stretched longer into 2024 and beyond.
What does this mean for your portfolios going forward?
Core Portfolios
The Core portfolios are meant for long term growth and capital appreciation. Equity markets may continue to exhibit short-term volatility amidst higher interest rates and the Israel-Palestine conflict may cause oil spikes hurting equity valuations. However, history has shown that the impact of such events are limited on the stock market. The Core Equity100 portfolio is still up close to 10% on YTD basis and we encourage investors to DCA into their equity portfolios during this volatile period to capitalize on subsequent market rebounds.
History has shown that Equity markets on average generate double digit returns once the Fed stops its rate hiking cycle.
REIT + Portfolios
For REIT+ investors, it has been particularly challenging as the S-REIT market has generated flat total returns over the last three years. As you can see from the chart, S-REITs faced the double whammy of covid related restrictions and then subsequent interest rate tightening that limited its upside potential since the highs in 2020. However, when you zoom into the long term return history of S-REITs, it is evident that S-REITs can generate handsome returns and dividends over a longer cycle.
As the interest rate normalises in the new year, we can see a surge in S-REIT prices. At the current juncture, we encourage REIT+ investors to remain patient and continue clipping the attractive dividends at 5.8%+ from S-REITs while waiting for the markets to recover in the new year. Over the long term, S-REITs should be able to generate 5-6% dividends and an additional 2-3% capital appreciation.
Income+ Portfolios
For Income+ investors, investors are torn between generating higher yields and preserving their capital. While Syfe’s Income+ investors are able to generate monthly dividends upto 6%, the price returns have been negative so far this year due to continued rising interest rates. We have noticed some investors who have shifted their funds to our safer investment options of Cash+ where they are able to lock-in 3.7% projected or guaranteed return on a relatively low risk basis.
We encourage income+ investors not to be discouraged by the market fluctuation in the past few months. We believe that bonds and Income+ portfolios provide the most compelling risk-reward in the current environment for longer term income seeking investors. As we can see from this chart, bonds tend to generate an average return of between 8% and 13% after the FED pauses its rate hiking cycle.
If you have any questions, please reach out to us at support.sg@syfe.com or call us at +65 3138 1215.
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