Syfe Core Portfolios Upgraded – Capture Long-Term Growth with Lower Risks and Costs

We’re pleased to share that we’ve completed major enhancements to our Core Portfolios (Equity100, Growth, Balanced, Defensive). This rebalance ensures the portfolios are aligned with current market conditions while optimising for long-term growth and performance.

Key Benefits of the Portfolio Upgrades 

  1. Enhanced return potential

We’ve enhanced the equity component of the portfolios by placing greater emphasis on value factor (companies priced with lower valuations) and quality factor (companies with strong financial health). Additionally, we’ve introduced small and mid-cap stocks to further diversify the portfolios. Meanwhile, our allocation to growth stocks has been reduced to help manage concentration risk. These changes are designed to provide more balanced exposure and, over the long term, deliver stronger risk-adjusted returns. 

  1. Optimised bond allocations 

Our adjustments in the bond allocations aim to increase yield while preserving capital. We’re introducing investment-grade and high-yield corporate bonds to enhance income potential while maintaining a focus on risk management. 

  1. Improved tax efficiency 

Our strategic shift to UCITS ETFs allows us to save on dividend withholding taxes. This can boost the portfolio’s performance by reducing dividend withholding tax costs by up to 0.7% of the portfolio value annually.

Performance Overview

This year, our flagship Core Equity 100 portfolio has delivered an impressive +15.8% YTD in SGD as of 30 September, beating its benchmark MSCI All Country World Index (+15.5%) and surpassing all peers. The upgrades to the portfolio are designed to further enhance long-term performance. Below is a comparison of the performance of the revamped Core Equity portfolio against the previous version and the benchmark. The revamped Core Equity100 portfolio has outperformed both the previous Core Equity100 portfolio and the benchmark, especially over the long term (5 and 8 years).

Equity component: Enhanced factors to improve long-term risk-return profile 

We’re constantly adapting our Core Portfolios to stay aligned with the ever-changing financial markets. The latest upgrades to the portfolios are focused on boosting return potential and improving diversification. These changes ensure that the portfolios are well-prepared for long-term growth.

  1. Strategic factor enhancements to drive long-term performance 

The new Core Portfolios have been enhanced to include value and quality factors as well as small and mid-cap stocks, which aim to drive long-term superior returns. This approach integrates the key strategic factors, adds diversification and seeks to deliver more sustainable performance.

To capture value with a quality overlay, we have selected the VanEck Morningstar Wide Moat ETF (MOAT), which invests in attractively priced companies with sustainable competitive advantages, as identified by Morningstar’s equity research team.

Additionally, to target value, quality, and size, we have chosen the Dimensional US Targeted Value ETF (DFAT), which invests in small- and mid-cap companies in the US with favourable value and quality characteristics. As discussed in our H2 Market outlook, small and mid-cap stocks tend to outperform large caps after the Fed cutting rates, due to their ability to capitalise on lower interest rates. 

Both ETFs were selected for their superior research, methodology, and track record.

  1. Closer sector alignment with the broad equity market 

The upgraded Core Portfolios have been adjusted to better align sector allocations with broad equity markets. This was achieved by removing sector allocation to utilities, healthcare, technology, and consumer staples. These improvements bring our portfolio closer to the benchmark, reducing tracking error and minimising the likelihood of significant performance deviations.

  1. Improved tax efficiency

We have transitioned Invesco S&P 500 Equal Weight ETF (RSP) to Xtrackers S&P 500® Equal Weight UCITS ETF (XDEW). This ETF provides 50% tax efficiency, which translates to a +22 basis point (bps) impact on ETF returns. This is equivalent to nearly 1% in returns over five years. In addition to dividend tax savings, the ETF maintains exposure to the size and value factor through equal weighting.

Updated Allocations for Revamped Core Equity100 

See the table below for the updated allocations of the revamped Core Equity100 Portfolio, which is also the equity component of the Core Growth, Balance, and Defensive portfolios.

Source: Syfe Research, Data accurate as of 30 September 2024. Actual portfolio weightings may vary slightly from those indicated due to prevailing market conditions.

Bond component: optimise for higher yield while maintaining risk management

We have optimised the bond allocation from US Treasury focused to be more in line with broad bond exposure. This means the Core Portfolios are now better equipped to capture the full potential return of the global fixed income market. We’ve carefully selected iShares Core Global Aggregate Bond UCITS ETF (AGGU) and iShares US Aggregate Bond UCITS ETF (IUAA) for the broad bond market exposure, improving tax efficiency and boosting overall performance.

To enhance your portfolio’s income potential, we’ve increased our allocation to investment-grade corporate bond ETFs. These bonds are from companies with good credit ratings, helping to maintain stability and reduce risk.

We’ve also added a measured allocation to high-yield bond ETFs, which offer higher returns while diversifying fixed-income exposure. 

Updated Allocations for Revamped Core Growth, Balance and Defensive

The table below summarises the updated allocations for revamped Core Growth, Balance and Defensive. 

Source: Syfe Research, Data accurate as of 30 September 2024. Actual portfolio weightings may vary slightly from those indicated due to prevailing market conditions.

UCITS transition: enhancing tax efficiency and lower total costs

To further improve tax efficiency, we’ve strategically transitioned to Irish-domiciled UCITS ETFs. Irish-domiciled UCITS ETFs can save up to 50% on dividend withholding tax, but tend to have lower liquidity and higher management fees. We have conducted a thorough evaluation of these ETFs, including their liquidity, cost-effectiveness and the availability of specific exposures. This ensures that the changes optimise your portfolio without compromising performance.

After the enhancements, 40-50% of your Core portfolios are in UCITS ETFs, significantly improving tax efficiency. This could translate to an estimated savings up to 0.70% of your portfolio value per year compared to investing solely in US-listed ETFs.

Syfe Core Portfolio Strategy 

At the heart of Syfe’s investment philosophy lie three pillars: diversification, cost-effectiveness, and a long-term vision. We are committed to playing the long game, and that is why our Core portfolios embrace a passive, enduring investment strategy.

Our core portfolios are globally diversified across asset classes, sectors, and geographies. Such diversification reduces risk while enhancing potential returns. We predominantly use index strategies to build these portfolios, ensuring minimal costs, transparent fees, and no hidden trailer-fees (kickbacks). By prioritising cost-efficiency and aligning our strategies with our clients’ goals and risk tolerance, we aim for enduring returns. Built upon years of research, expertise, and experience, our investment approach is designed to stand the test of time.

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