Syfe Portfolio Performance Review Q4 2023: Rode Market Rally 

In the last quarter of 2023, the global markets were upbeat, as the Fed signalled potentially earlier start of interest rate cuts in 2024. This news sparked rallies in both stocks and bonds. The S&P 500 index closed to its peak in early 2022, and 10-Year US Treasuries dropped from 5% in October to 3.8% in December. This shift contributed to a strong close to global assets, wrapping the year 2023 on a positive note. 

Given these moves in global markets, we will conduct a detailed Q4 2023 portfolio review. 

Key performance highlights for Syfe Portfolios in Q4 2023: 

Syfe Core Portfolios:  Rode the Q4 2023 Market Rally  

Source: Syfe, Bloomberg. As of 31 December 2023, in SGD. Syfe model portfolio performance net of fund level fees and may include point-in-time backtested historical data. Benchmarks: Equity100 (MSCI World, MSCI ACWI), Core Growth (S&P Target Risk Growth), Core Balanced (S&P Target Risk Moderate), Core Defensive (S&P Target Risk Conservative).

Performance Spotlight  Our Core portfolios all captured gains as they rode the market rally. In Q4 2023 alone, Equity100, Growth, and Balanced soared close to 6%, while Defensive gained 4%. The returns of the four portfolios in 2023 were 15.9%, 11.9%, 8.2%, and 6.4%, respectively, buoyed by returns in Equities.

One key point to note regarding our MSCI World benchmark performance is how concentrated these returns were in the US tech giant group known as the “Magnificent Seven” who collectively constitute 27% of the index. They were the main driver for performance in 2023, achieving an average total return of 104.7% and contributing to almost two-thirds of the S&P’s gains in 2023. 

Our Core portfolios, designed with a diversified approach across various sectors and regions, did not realise all of those gains but remain in good shape for the future with the aim to continue delivering greater risk-adjusted returns. Equity100’s annualised volatility remains below that of the MSCI World Index and significantly below that of the Magnificent Seven.

Looking ahead   As highlighted in Investor Trends and Outlook 2024, the global economy is forecasted to slow down in 2024, though a deep recession is unlikely. With inflation likely to continue moderating, the Fed is set to cut interest rates this year. Following the strong rally of mega tech stocks, the S&P 500 is facing a concentration risk that has not been observed in the past 50 years.

 In light of  these market conditions, a diversified approach could be more appropriate. Our Core Portfolios diversify by investing in equal-weight ETFs and focusing on quality and defensive equity sectors. This can help investors better position their portfolios to capture these evolving trends and provide better risk-adjusted returns in the long run. 

Syfe REIT+ : Staged A Strong Comeback 

Source: Syfe, Bloomberg. As of 31 December 2023, in SGD. Syfe model portfolio performance net of fund level fees and may include point-in-time backtested historical data. Note that the returns for Syfe REIT+ portfolios are reported gross of Syfe management fees which will reduce performance by approximately 0.4% p.a. (gold tier client). Both the CSOP iEdge S-REIT Leader ETF and Lion-Phillip S-REIT ETF performances are reported after management fees. 

Performance Spotlight The performance of the S-REITs market in 2023 was akin to a roller coaster ride, marked by significant fluctuations. The year began with a strong rally, but lost ground in Q3 due to the Fed’s hawkish guidance. However, the final quarter saw a reversal in market sentiment, driven by the Fed’s plan to embark on earlier rate cuts in 2024.

Along with the broader S-REITs market, our REIT+ portfolio staged a strong comeback in Q4. The REIT+ (100% REITs) portfolio returned +7.9% in Q4, bringing the total return in 2023 to 7.3%. The performance surpassed the benchmark iEdge S-REIT Leaders Index’s return of 5.7% in 2023. 

Notably,  REIT+ portfolios have demonstrated greater resilience during volatile market conditions. This is due to the REIT+ portfolios’ investment strategy, which invests only in the top 20 REITs in Singapore. The portfolio has no exposure to non-SGD REITs, which were severely impacted in 2023.

Looking ahead The Fed’s potential pivot in its monetary policies in 2024 could remove one of the key headwinds for S-REITs. S-REITs stand to benefit from lower interest rates through reduced financing costs. As of December 2023, S-REITs are still attractively valued with a price-to-book ratio of 0.9X, remaining below its 10-year average of 1.03X.

Read More: Is now the time to relook Singapore REITs?

Syfe Income+:  Outperformed Broad Bond Market

Source: Syfe, PIMCO, Bloomberg. As of 31 December 2023. Syfe model portfolio performance net of fund level fees. Statistics are based on the weighted fund allocation within each model portfolio. Inception date of Syfe Income + Portfolios was 31 March 2023. 

Performance Spotlight In Q4 2023, global bond markets saw their best quarterly performance in over two decades. Income+ portfolios have not only successfully captured the upward movement, but outperformed the broad market. 

In Q4, Income+ Preserve and Income+ Enhance returned +5.8% and +6.3%, respectively. Since inception (as of 31 March 2023), they have achieved returns of 3.8% and 3.4%. Both portfolios have outperformed the broad bond market in Q4 and since inception, as measured by the Bloomberg Global Aggregate Credit Index.  The outperformance was primarily driven by portfolios’ strategic positioning in US bonds, which benefited from the significant pullback in US Treasury yields.

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. Since its inception, Income+ Preserve and Income+ Enhance have achieved an average annualised payout ratio of 4.2% p.a and 5.7% p.a respectively, within the target range of 4% p.a to 6% p.a

Source: Syfe, PIMCO, Bloomberg. As of 31 December 2023. Statistics are based on the weighted fund allocation within each model portfolio. Calculated as monthly weighted distribution yield distribution annualise for 12 months.

Looking ahead Currently, the bond market presents compelling opportunities, with starting yields near 15-year highs. As the rates are expected to stabilise followed by a decrease, bonds offer an attractive combination of potential gains and lower volatility. Both Income+ Reserve and Income+ Enhance are well-positioned to capitalise on these opportunities due to their flexible and diversified strategies.

Thematic Portfolios: Disruptive Technology Continued to Shine

Source: Syfe, Bloomberg. As of 31 December 2023, in SGD. Syfe model portfolio performance net of fund level fees and may include point-in-time backtested historical data.

Among the Thematic portfolios, Disruptive Technology continued to be favoured by the market in Q4, delivering a stellar return of 18.5%. This brought the total return in 2023 to a whopping 43.8%. However, after the strong rally in 2023, the valuations of some big Tech companies do appear expensive.

The themes, ESG & Clean Energy and Healthcare, delivered only flat returns in 2023. Investors’ enthusiasm was primarily centred around generative artificial intelligence. Despite positive developments, especially in the healthcare space, some of the innovations were overshadowed by the enthusiasm for AI.

China’s equity markets had another disappointing year in 2023, with economic growth continuing to be under pressure due to the slowdown in the property market. We encourage investors to remain opportunistic regarding Chinese equity markets. While China’s overall economic growth is expected to remain soft, the “new economy” sectors might offer pockets of opportunity, as their valuations appear attractive and they are receiving policy support.

Syfe Cash+ : Time to Consider Investing Excess Cash

Source: Syfe, Bloomberg. As of 31 December 2023, in SGD. Cash+ performance reported net of Syfe management fees.

In Q4, Cash+ Flexi achieved an annualised actual net realised return of 3.5%. The current projected return stands at 3.8% p.a. (as of 31 December 2023). 

Cash+ Guaranteed is a cash management solution we launched in Q3 2023. Investors’ funds are placed in fixed deposits with banks regulated by the Monetary Authority of Singapore. In Q4 2023, we added different terms (3 months, 6 months and 12 months) to better meet investors’ different liquidity needs. 

At present, cash still offers attractive yields. However, as central banks begin to reduce rates, reinvestment is likely to yield lower returns. We encourage investors to consider allocating excess cash to bonds, REITs, and equities, which could potentially offer higher returns above inflation in the long term.

Our Thoughts For 2024 

As we transition into 2024, we are positioned at a critical juncture in monetary policy. Major central banks are shifting gears from rate hikes to cuts. With interest rates poised to stabilise, the investment landscape will present new opportunities and challenges. This year is anticipated to herald a transition from cash to a more diversified investment portfolio, including income offerings such as bonds and S-REITs as well as quality and defensive equity sectors.

To find more: Syfe Investment Outlook 2024 – Your New Playbook as the Fed Pivots

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