Syfe Portfolio Performance Review [Q12023]

Quarterly Market Review

Global equities and fixed income rallied in Q1 2023 despite uncertainties on the FED interest rate policy as inflation remained sticky and signs of stress emerged in the global banking system. Market volatility following the collapse of SVB and takeover of Credit Suisse by UBS did not dent investor optimism as key indices such as S&P 500 and MSCI World rallied by more than 7% and high growth index NASDAQ100 surged over 20% entering into a bull market to levels not seen in three years.

Source: Syfe, Bloomberg. As of 31 Mar 2023 in USD.

Syfe Core Portfolios Best Performing Among Peers

During Q1, all Syfe Core portfolios closed on a high and generated positive returns ranging from 4.2% to 6.5% in SGD terms.

Core Equity100 bounced back in March after a challenging start to the year and closed the quarter up 6.5% rallying on the back of the recovery in technology and growth sectors. Core Growth, Balanced and Defensive portfolios all outperformed their respective benchmarks by 0.5% – 1.6% benefiting from their higher allocation to longer dated treasuries which jumped amidst the banking sector stress over the last couple of months while gold acted as a safe haven asset and shielded the portfolios from the market volatility.

Overall, Syfe Core portfolios were the best performing portfolios among peers in Singapore for Q1 2023.

Source: Syfe, Bloomberg. As of 31 March 2023, in SGD. Benchmarks: Equity100 (MSCI World), Core Growth (S&P Target Risk Growth), Core Balanced (S&P Target Risk Moderate), Core Defensive (S&P Target Risk Conservative).

Syfe Core Portfolios – Looking Ahead

Syfe Core portfolios maintain strategic asset allocations and factor exposures that drive long term risk-adjusted returns. The core portfolios were rebalanced in April 2023 to address price and factor drifts to optimise their long term returns. 

On the equity side, the core portfolios currently maintain an equitable distribution between value and growth factors to balance defensive sectors (which tend to do well in recessionary environments) with growth sectors (which may continue their bounce back if inflation eases and the FED starts cutting rates). We also continue to have an enhanced allocation to Chinese equities that allows the portfolio to participate in the demand recovery in China as it opens up and reduces the portfolio’s overall correlation to the market.

On the fixed income side, the core portfolios are positioned to benefit from the recovery in bonds as we reach peak interest rates. The fixed income allocation in our core portfolios are meant to add diversification and dampen the portfolio volatility in times of stress. As such, the fixed income portion is majorly allocated towards US treasuries with slightly longer duration. While this resulted in a challenging 2022 when the FED hiked interest rates at one of the fastest pace in decades to tame inflation, 2023 has seen our core portfolios with fixed income allocations stage impressive rebound and generate handsome outperformance against their respective benchmarks with market expectations growing stronger for a pause in rate hikes this year.

We believe that the current positioning of the core portfolios allows them to benefit both from the recovery in fixed income and growth equities as we reach peak interest rates as well as the potential boost in demand due to China’s reopening.

REIT+ Continues to Stand Out As The Portfolio of Choice For Investing into S-REITs

Singapore REITs (S-REITs) kicked off 2023 with a strong start with January being its best performing month since 2020. Even with the global market turmoil in February, Syfe REIT+ portfolios remained resilient and led the performance charts clocking over 6.1% returns for Q1 2023. First quarter returns were also boosted by above expectation dividend payouts for S-REITs within the REIT+ portfolios. 

It is with this backdrop and the growing interest from our investors in Singapore that we held our largest in-person seminar in partnership with SGX, Lion Global and REITAS to discuss the market outlook and potential for S-REITs in the current macro environment. Here is the recap from the seminar for your reference.

Overall, REIT+ (100% REIT) portfolios outperformed its benchmark index by 1.2% in Q1 2023.

Source: Syfe, Bloomberg. As of 31 March 2023, in SGD.

Extending the time horizon, REIT+ (100% REIT) has generated more than 4% outperformance compared to its benchmark (13% vs 8.7%) since inception and beaten the cumulative returns of all major REIT ETFs in Singapore both on a YTD as well as since inception basis.

Source: Syfe, Bloomberg. As of 31 March 2023, in SGD. Syfe REIT100 inception date is 30 Apr 2020.

Even though REIT+ (100% REIT) is built to track the index, we have built efficiencies for the REIT+ portfolios such as additional liquidity screenings, return optimisations and auto dividend reinvestment. These efficiencies have ensured that investors reap the benefits in the form enhanced returns for our portfolios compared to the benchmark as well as other ETF products in the market. Syfe REIT+ continues to have strong investor interest given its high, consistent dividend yields and remains the portfolio of choice for investing into S-REITs.

Launch of Syfe Income+ Portfolios, Powered by PIMCO

In the current backdrop of high inflation, rising rates and economic uncertainties, investors have been looking to allocate a larger portion of their investments into solutions such as bonds or fixed income. 

We are thrilled to announce the launch of Syfe Income+ portfolios in partnership with PIMCO, a global leader with over five decades of experience in active fixed income.

Syfe Income+ is a first-of-its-kind offering built by Syfe, using a unique portfolio construction process that is powered by PIMCO’s forward-looking views and time-tested investment approach. This innovative partnership combines Syfe’s cutting-edge technology with PIMCO’s best-in-class fixed income strategies to deliver the best outcome for all your income needs.

Some key features of Income+ include:

  • Monthly Payouts of 4.0-6.0% p.a.
  • Powered by PIMCO and optimised using their forward looking market views
  • Built using best-in-class institutional funds with ~60% reduction in fund fees
  • SGD hedged and tax efficient
  • No lock-in or withdrawal penalties

With the launch of Income+, we now have a comprehensive suite of yield-generating and passive income solutions on the Syfe platform with Cash+ and REIT+ as our base. Our team has been working tirelessly to bring this offering to life, and we are really excited to share it with you!

Disruptive Technology Leads Recovery in Growth Investing Among Thematic Portfolios

Syfe Thematic portfolios are meant for targeted exposures to specific megatrends, sectors or countries. These portfolios act as satellites to the core long term strategic allocations for our clients.

After a turbulent 2022, technology and growth stocks have started 2023 on an optimistic note with the Disruptive Technology thematic portfolio gaining close to 20% on YTD basis following closely the surge in NASDAQ100. Similarly, all other thematic portfolios have had a positive start to 2023 with low to mid single digit returns. Healthcare Innovation generated flattish returns for the quarter as the healthcare sector lagged the broader markets but it still outperformed the healthcare sector by about 3%.

Source: Syfe, Bloomberg. As of 31 March 2023, in SGD.

Similar to core portfolios, thematic portfolios are risk managed to drive long term returns within the specific theme, sector or country they are focused on. In the April 2023 rebalance, we did not add or remove any constituents from the thematic portfolios and have reoptimised the portfolios to mainly address price drifts. Clients are recommended to assess the risk-reward of investing into thematic portfolios and are advised to follow the core-satellite approach while taking these exposures.

Cash+ Projected Returns Increased to 3.5%

Syfe Cash+ portfolios remained resilient and acted as the safe haven for investors looking to remain on the sidelines. With interest rates on the rise, we saw increased client inflows into our Cash+ portfolios as we updated the projected returns from 2.6% in Dec 2022 to 3.5% in April 2023. 

Source: Syfe, Bloomberg. As of 31 March 2023, in SGD.

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 2.3% returns, 0.2% above the projected rate.

February 2023 saw increased volatility in the bond market amidst the fallout of SVB and Credit Suisse. None of the funds in Cash+ held any exposure to Credit Suisse or SVB and the portfolio remained stable during this period. The underlying funds also used this opportunity to adjust their exposures to safer yet higher interest bearing bonds positioning them for enhanced yields as the bond markets recover.

We are confident that Cash+ will continue to deliver a stable return experience for investors looking for safe haven investing and foresee the projected yields to move closer to 4% in the next few months.

Our Thoughts on the Upcoming Quarter

The just released data on US GDP showed a slower-than-expected growth of 1.1% (vs 1.9% expected) in the first quarter of 2023. On the earnings side, analysts have revised their estimates for first-quarter earnings, with a projected year-over-year profit drop of 2.4% for S&P 500 companies, a significant improvement from the 5.1% decline forecasted at the beginning of the earnings season. 

Despite slower GDP growth, the Federal Reserve is still anticipated to increase interest rates by 25 basis points next week. Investor attention is mainly on the positive earnings reports and optimistic outlook for tech giants, such as Facebook, Alphabet, and Amazon, with less emphasis on the overall economic climate.

On interest rates, The FOMC dot plot shows rates peaking at 5.1% this year and then coming down in 2023-24. As per the chart below, both Fed and markets agree that interest rates will fall by 2023. We believe market expectations are a bit too optimistic and while we are close to reaching peak interest rates, we may not see rate cuts until 2024. 

Overall, while investment sentiment in 2023 has improved compared to last year, equity markets will remain volatile with key macro indicators such as inflation and growth dominating near term movements. We view fixed income as a bright spot in the current environment and see investors increasingly allocating back to bonds given the attractive level of yields and limited downside risks.

Previous articleInvestment Strategy | Syfe Income+, Powered by PIMCO
Next articleWeekly Market Wrap | 29 April 2023