Q2 2024 was another positive quarter for equities. Strong market sentiments from Q1 persisted in Q2, with S&P 500 and Nasdaq 100 continuing to reach new highs.
It was a quarter where we saw “bad news” become “good news”. Back in April, a streak of unexpectedly strong economic data in the US sparked concerns that inflation might be sticky. This led investors to dial back the rate cut expectations, resulting in a selloff in both equities and bonds. However, as the quarter progressed, most of the concerns abated. Softer data in May and June were actually welcomed by investors. By the end of the quarter, both equities and bonds had bounced back.
In light of these developments in the financial market, we will conduct a detailed review of our managed portfolios’ performance for Q2 2024.
Key performance highlights for Syfe Portfolios in Q2 2024:
- Core Portfolios: Beat the benchmarks
- REIT+: Nearing an inflection point
- Income+ : Another quarter of outperformance
- Thematic Portfolios: A mixed bag of returns
- Cash+: Put your extra cash to work
Syfe Core Portfolios: Beat the benchmarks
Performance Spotlight: All four Core portfolios delivered strong performance and managed to outperform their respective benchmarks this quarter. In Q2 2024. Equity100, Growth, Balanced and Defensive have returned +3.7%, +2.8%, +1.8% and +1.4% respectively in Q2 2024, bringing the YTD return to +13.0%, +9.8%, +6.4% and +5.0%.
Allocation to QQQ (Invesco QQQ ETF) was the largest contributor to performance this quarter. Enthusiasm about artificial intelligence continued to drive the share prices of several mega-cap stocks higher, including Nvidia, Microsoft, and Apple. Even though core portfolios adopt a diversified approach, our allocation to the growth factor, expressed through QQQ, allowed the portfolios to capture the AI-led market rally. This has helped to offset the soft performance in some defensive sectors, such as healthcare and utilities.
This quarter, the portfolio’s diversification into Chinese equities also contributed positively to the portfolio. The Chinese government’s proactive measures to stabilise the economy, including targeted stimulus and regulatory easing, resulted in a notable recovery in Chinese equity markets.
For our Growth, Balanced, and Defensive portfolios, diversification into Gold proved to be a significant positive contributor to outperformance. Amid rising geopolitical tensions, gold served as a reliable hedge. The strategic allocation into gold has enhanced the portfolios’ resilience and contributed to the positive returns. This highlights the benefits of a balanced investment approach over the long run.
Looking ahead: As highlighted in our recent article, “Why Your S&P 500 Investments Are Riskier Than You Think-The Hidden Danger of Concentration Risk ” , investors in the passive S&P 500 index actually suffer from significant concentration risk. The “Magnificent 7”, the seven tech giants, now total 32% of the index, the highest in history. The broader MSCI World index has over 22% exposure to the index, whilst in comparison, the Core Equity 100 has only 17% exposure to the “Magnificent 7”.
Our flagship core portfolios allow you to effortlessly invest in a diverse portfolio of equities, bonds, and commodities across countries and sectors. Each core portfolio is catered to different risk appetites, but all are professionally managed using low-cost ETFs with exposure to thousands of underlying securities per portfolio. The global and asset class exposures of these portfolios are managed as markets shift, reducing concentration risk, so you don’t have to actively monitor the markets.
Syfe REIT+ : Nearing an inflection point
Performance Spotlight: REIT+ portfolios experienced another soft quarter. REIT+ (100% REITs) declined by -4.6%, bringing the YTD return to -11.5%. This was primarily driven by a shift in rate cut expectations by the Fed to a delayed start, impacting S-REITs which are particularly sensitive to interest rate movements. Investors were disappointed that this potential catalyst was postponed to the second half of the year.
However, as we look past the day-to-day volatility, the fundamentals of most Singapore REITs remain robust. In the latest quarterly earning season, many S-REITs reported healthy occupancy rates and positive rental revisions. For example, Mapletree Pan Asia Commercial Trust not only maintained high portfolio occupancy but also increased it to 96.1%. CapitaLand Ascendas REIT sustained a healthy occupancy rate at 94.2%, leading to a positive rental reversion of 13.4%.
Overall, S-REITs have shown their resilience and ability to generate stable, visible, and durable cash flows from their underlying assets, even in the face of macroeconomic headwinds.
Looking ahead: S-REITs are nearing an inflection point. Compared to a year ago, the conversation regarding rate outlook is very different. In 2023, investors debated when interest rates would peak. Today, the conversation has shifted to the timing of the first rate cut.
Recent data shows very encouraging signs: June’s inflation fell by 0.1%, bringing the 12-month rate to 3%, its lowest level in over three years. Softening inflation could give support to the Fed to start cutting rates as early as in the coming September. According to the latest pricing of rate futures, the probability of the first rate cut starting in September has spiked to 85%.
We encourage investors to look beyond the recent price dip in S-REITs. We see value in many quality S-REITs trading at close to a 6% yield today. For instance, our REIT+ portfolio, which invests in the top 20 quality S-REITs in Singapore, offers an attractive yield of 6.3% p.a. Currently, S-REIT prices are near the lows in October 2023. By positioning early, investors can take advantage of the current attractive yields offered by S-REITs, and benefit from potential capital appreciation when the next policy easing cycle begins.
Syfe Income+: Another quarter of outperformance
Performance Spotlight: While the overall bond market remained relatively muted in Q2, both Income+ portfolios delivered another robust quarter. In Q2, Income+ Preserve and Income+ Enhance returned +0.4% and +1.1% respectively, bringing their YTD returns to +1.4% and +3.3%. Compared to the benchmark, the YTD outperformance widened to +2.1% for Income+ Preserve and +4.0% for Income+ Enhance. This outperformance was primarily driven by the PIMCO fund managers’ active management of interest rates, corporate bonds, and currencies.
Income+ has delivered on payout yield. One of the primary investment objectives of the Syfe Income+ portfolios is to provide sustainable and diversified income sources. Towards the end of June and the beginning of July, we conducted a portfolio optimisation exercise to keep the distribution yield for Income+ Preserve within our target range of 4.0% to 4.5%. The average annualised payout yields for Income+ Preserve and Enhance in Q2 were 4.3% and 5.6% respectively, meeting our target payout yields.
Looking ahead: For the first time in nearly 20 years, bonds are presenting an exceptionally attractive investment opportunity. As we are approaching the start of a rate cutting cycle, locking in current attractive yield can provide investors with predictable income and potential capital growth opportunities.
Thematic Portfolios: A mixed bag of returns
For the quarter, thematic portfolios delivered a mixed bag of returns. China Growth started to see some recovery in Q2, up +1.9%, bringing the YTD return to +1.6%. As investors’ confidence remained subdued, most of the gains were driven by more established big caps. The Chinese government’s efforts to stabilise the economy and promote growth also played a role in this modest rebound.
The other three themes—Disruptive Technology, ESG & Clean Energy, and Healthcare Innovation—saw flat to negative returns in Q2. Despite significant advancements and positive news within these sectors, they were largely overshadowed by the intense focus on mega tech companies, particularly those involved in AI development. The AI-driven rally captured most of the market’s attention and investment, drawing interest away from other innovative and sustainable sectors.
Syfe Cash+ : Put your extra cash to work
Cash+ Flexi：The Cash+ Flexi portfolios delivered stable and positive returns in Q2 2024. The Cash+ SGD Flexi portfolio generated +0.9% in Q2, bringing the YTD return to +1.8%. The Cash+ USD Flexi portfolio generated +1.4% in Q2, bringing the YTD return to +2.7%.
In preparation for the Fed starting to cut rates in the second half of this year, some banks have moved to lower the interest rates on savings accounts in Q2. Cash + Flexi can be an alternative to park your emergency cash or funds needed for the near term. Cash+ Flexi portfolios invest in money market funds that are highly liquid and low risk, allowing withdrawals within 1 to 2 working days.
Cash+ Guaranteed: The guaranteed rates have remained steady in Q2, ranging from 3.5% p.a. for 12 months to 3.8% p.a. for 6 months. These rates are higher than those offered by traditional fixed deposit accounts. For your extra cash that you can afford to lock in for a short period, Cash+ Guaranteed is an ideal choice.
Time to invest your extra cash: Beyond your emergency savings and short-term needs, now is an opportune time to invest. As the Fed prepares to cut rates, the implications are clear: today’s attractive cash yields may not last. Various assets tend to perform well during a monetary easing cycle. You might want to consider reallocating your cash into bonds, S-REITs, or equities to make the most of this timing and potentially enhance your returns.
Our Thoughts For H2 2024
As we enter the second half of 2024, we are at a critical point in monetary policy. Many major central banks began cutting rates in the first half of 2024, and the Fed is likely to follow suit in the second half of this year. This transition opens new opportunities in the investment landscape. However, there are potential risks as well. The US election in November will be a focal point for financial markets, adding to the uncertainty from monetary policies. While we don’t expect the election outcome to derail the equity market rally, it may cause short-term volatility due to potential policy changes.
Investors are recommended to move from cash to investments, and focus on creating a more balanced portfolio, including bonds, S-REITs, and diversified equity portfolios.
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