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FSM MAPS: Estimated Potential Upside and Yields

FSM MAPS: Estimated Potential Upside and Yields

What sort of potential returns and estimated yields are clients who are invested in FSM MAPS looking at?


When one buys an investment, we usually would enquire as to the type of returns we could realistically achieve. For instance, when we purchase a fixed income fund, we typically look at the yields and spreads of the segment we're considering. For equity funds, a similar approach could see us assess the upside potential of the underlying market based on one's estimate of the fair PE ratio and where the market is currently trading at.

With the above in mind, what sort of returns and yields are clients who are invested in FSM MAPS looking at?

Underlying Markets' Potential Upside

Equity markets as a whole performed decently in 2016 as pointed out in our Top Markets 2016 article, and have continued to do relatively well into the new year, a far cry from a year ago. However, alongside their strong returns, certain markets have seen their potential upside reduced thanks to higher valuation multiples. Markets such as the US and Europe are examples of such markets where forecasted returns are low as seen in Chart 1 below.

Chart 1: Forecasted Annualised Total Return

While some markets have low estimated potential upside as they have little room for an expansion of their valuation multiple, leaving them with only earnings growth and dividends to drive their potential returns; other such as Asia ex Japan and many Northern Asian markets have significant room for expansion of their valuation multiples alongside anticipated strong rates of earnings growth as well as acceptable dividend yields as can be seen in Chart 2.

Chart 2: Opportunities for Valuation Expansion

 

For FSM MAPS, as mentioned previously in FSM MAPS: Positioning For The Opportunities To Come in 2017, we're positioning ourselves for the opportunities we see in Asia ex Japan and the Emerging markets and are looking to benefit our FSM MAPS holders through two avenues: overweighting markets where we the potential for higher upside is strong, and, through our product selection expertise. Combining Chart 1 together with our portfolio positioning for FSM MAPS, Table 1 below shows the range of potential upside based on the underlying markets' potential upside for the equity allocation of the portfolio as well as the estimated yield-to-worst for the fixed income portion.

Table 1: Range of Potential Upside

Portfolio

Estimated Underlying Upside Potential*

Conservative

4.26%

Moderately Conservative

5.46%

Balanced

6.62%

Moderately Aggressive

7.59%

Aggressive

8.15%

Source: iFAST Compilations
*Upside potential calculated via:underlying market data for equity allocation's forecasted 2018 annualised total return, Yield-to-Worst for fixed income allocation. Data as of 9 Jan 2017

For investors who are invested in the FSM MAPS Income portfolios, while our current defensive stance in the bond space has marginally lowered yields, we believe this will put us in a better position to take advantage of opportunities when they present themselves along the way this year. Combining the estimated yield-to-worst for the fixed income portion of the portfolio together with the estimated dividend yield of the equities portion of the portfolio allows us to estimate the current yield of the portfolios one is invested in as seen in Table 2 below. While the figure might seem low for investors, FSM MAPS Income portfolio holders should remember that they will not be limited to just the yield of their portfolios, but they too will be participating in the upside potential listed in Table 1 below.

Table 2: Estimated Yield

Portfolio

Estimated Underlying Yield*

Conservative

3.31%

Moderately Conservative

3.30%

Balanced

3.29%

Moderately Aggressive

3.35%

Aggressive

3.20%

Source: iFAST Compilations
*Upside potential calculated via:underlying market data for equity allocation's forecasted 2018 annualised total return, Yield-to-Worst for fixed income allocation. Data as of 9 Jan 2017

With the above estimated yields and upside potential, FSM MAPS is positioned to deliver both returns as well a decent stream of income in the continued low interest rate environment. Investors in the FSM MAPS portfolios will not only be likely to benefit from our positioning and product selection, but will also enjoy hassle-free investing given that the portfolio management team will assist them to conduct rebalancing to more attractive opportunities or to adjust the inter and intra asset allocation as and when required depending on the risks and opportunities we see. Don't hesitate and get your own investing roadmap with FSM MAPS today!


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