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FSM Portfolios: Developed markets equity dragged overall performance April 13, 2011
This article provides a quick overview of the recent market happenings as well as some of the key factors that have influenced our five recommended portfolios’ returns.
Author : iFAST Research Team


Untitled Document

Market Summary for March 2011
After two consecutive months of negative returns, Asia ex-Japan and Emerging Markets equities rebounded strongly in March. The MSCI Asia ex-Japan index and MSCI Emerging Market index rose 6.2% and 5.7% respectively. However, the MSCI AC World index ended March 0.3% lower as developed markets dragged overall performance. The triple disaster in Japan saw the Nikkei 225 index falling 8.2% while US’s S&P 500 index and Europe’s Stoxx 600 index fell 0.1% and 3.7% respectively (all returns as of 31 March 2011 in local currency terms).

Fading concerns despite ongoing geopolitical uncertainty
After shutting for almost two months, the Egyptian stock exchange reopened for trading on 23 March 2011. The massive sell-off on the day of market re-opening triggered the market circuit breaker which halts trading following a 5.0% fall. Meanwhile, oil prices continue to edge higher as geopolitical uncertainty in Middle East remains acute, threatening global oil supply as Brent Crude hit US$117.36 a barrel as of 31 March 2011. However concerns over the region appear to have abated following the triple disaster in Japan which threatened to dislodge global economic recovery.

Sentiments weakened by Japan’s triple disaster seem to have recovered
Global equity markets corrected sharply following Japan’s triple disaster scare (earthquake followed by tsunami and a potential nuclear reactor meltdown). However, global equity markets soon rallied following news that the problem within the affected nuclear reactor came under control. Most of the global equity markets have since recovered from the Japan’s earthquake led correction and are on their way to mend the damages caused by the political unrest that took place in the Middle East in late January. With the focus back on market fundamentals, the weakened sentiments in Japan can be deemed as over.

World Largest Bond Fund Manager slashing US Treasury bond holdings to zero
Bill Gross, the manager of the PIMCO Total Return Fund, has cut his fund’s holdings of Treasury bonds to zero. In his March update on the investment outlook, Gross explained that it is crucial to see who will buy US Treasuries once the Federal Reserve stops its purchases after the QE2 programme concludes in June this year. Since the second round of quantitative easing programme was implemented, the Fed has bought US$412 billion of US government bond. It is estimated that the Fed has bought approximately 70% of all new Treasury bond issuance. It seems that the yields offered by US government bonds will need to be increased in order to attract new investors, and Gross believes that Treasury bond prices will likely drop in the future unless there is another round of QE.

The view is in-line with ours that there isn’t widespread value across the bond asset class. Our long-standing call to underweight bonds vis-à-vis equities remains intact, given that yields remain low and inflationary risk is to the upside.

Table 1: Past 6 monthly performance
Monthly Returns Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive
31-Mar-11 0.8% 1.1% 1.5% 0.1% 0.3%
28-Feb-11 0.1% -0.1% -0.3% 0.3% 0.2%
31-Jan-11 -0.4% -0.7% -1.2% -1.4% -1.8%
31-Dec-10 -0.4% 0.5% 1.3% 2.3% 3.1%
30-Nov-10 -0.5% 0.0% 0.2% -0.2% 0.0%
29-Oct-10 0.4% 0.5% 0.7% 0.9% 1.2%
Source: iFAST Compilations

Table 2: Portfolio returns overview

  Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive
Rolling 1-year chain-linked performance 5.3% 5.6% 5.8% 4.0% 4.2%
Year-to-date 0.6% 0.3% -0.1% -1.0% -1.3%
2010 6.2% 6.6% 6.8% 4.4% 4.3%
Chain-linked performance since revamp (end Aug 2009) 10.8% 11.6% 12.4% 8.9% 10.1%

Source: iFAST Compilations (as of end Mar 2011)

Developed market dragged overall performance
Bond funds have held up well as they benefitted from the “flight-to-safety” following a spike in risk aversion from global investors. In fact, all the bond funds within the portfolio managed a positive return in March with the UOB United Glb Emerging Mkts Portfolios S$ coming top with a 1.4% returns after adjusting for dividends paid in the month.

As for equities, while Asian and Emerging Markets equities held up well, the developed market equities weighed down performance. Aberdeen American Opportunities and PRU Pan European Fund fell marginally by 1.0% and 0.8% respectively. Their heavy weighting in the Moderately Aggressive and Aggressive portfolios affected the overall risk-return scaling among all five portfolios. The worst performing equity fund was LionGlobal Japan Growth Fund, which fell 6.3% in March. The poor performance from the developed markets equities offset the 4.6% and 4.3% returns of Schroder Asian Growth Fund and Aberdeen Global Emerging Markets respectively.

For more details of the fund performance with respect to individual portfolios, please refer to the monthly factsheet of respective recommended portfolios.

Table 3 shows our current funds selection as well as their respective weights for each of the five FSM recommended portfolios. You may refer to table 4, 5 and 6 under the “Appendix” section for more details on the asset allocation breakdown.

Table 3: Latest Portfolio Allocation
Categories Recommended Funds C MC B MA A
Bonds
Singapore / SGD Bias Fullerton Short Term Int Rt C S$ 24.0% 18.0% 12.0% 10.0% -
Global Bonds DWS Lion Bond Cl A 12.0% 9.0% 6.0% 10.0% -
Asian Bonds Legg Mason Asian Bond Trust 20.0% 15.0% 10.0% - -
Emerging Market Debt UOB United Glb Emerging Mkts Portfolios S$ 12.0% 9.0% 6.0% - -
High Yield PRU Monthly Income Plan Cl A 12.0% 9.0% 6.0% - -
Equities
Global Equity Aberdeen Global Opportunities 10.0% 20.0% 30.0% - -
Global Emerging Market Equity Aberdeen Global Emerging Markets 10.0% 14.0% 21.0% 25.0% 31.0%
Asia Ex-Japan Equity Schroder Asian Growth Fund - 6.0% 9.0% 10.0% 14.0%
US Equity Aberdeen American Opportunities - - - 20.0% 25.0%
European Equity PRU Pan European Fund - - - 20.0% 25.0%
Japan Equity LionGlobal Japan Growth Fund - - - 5.0% 5.0%
Source: iFAST Compilations
NOTE: C – Conservative, MC – Moderately Conservative, B – Balanced, MA – Moderately Aggressive, A - Aggressive

Start with $20,000
Investors should be able to follow the target allocation in Table 3 with S$20,000 as starting capital. The research team at iFAST will be providing the portfolio review on a monthly basis at the start of each month.

Latest Portfolio factsheets
The portfolios' factsheets are updated on a monthly basis and links for the most up-to-date factsheets are as provided below:

  1. Conservative Portfolio
  2. Moderately Conservative Portfolio
  3. Balanced Portfolio
  4. Moderately Aggressive Portfolio
  5. Aggressive Portfolio

previous months portfolio summary

  1. February 2011 - FSM Portfolios: Diversification does reduce systematic risk
  2. December 2010 - FSM Portfolios: And the winner is….. the BALANCED PORTFOLIO!
  3. November 2010 - FSM Portfolios: Performance mostly flat on weak sentiments
  4. September 2010 - FSM Portfolios: Sep was probably the best month for most equity markets in recent times
  5. August - FSM Portfolios: Equity market volatility evident in portfolio performance
  6. July 2010 - FSM Portfolios: Risk takers rewarded with bigger winnings
  7. June 2010 - FSM Portfolio: Supplementary portfolio can be a double edged sword
  8. May 2010 - FSM Portfolio: Bonds helped preserve portfolio’s capital
  9. April 2010 - FSM Portfolio: It pays to be safe
  10. February 2010 - FSM Conservative Portfolio outshines once again
  11. January 2010 - FSM Recommended Portfolio Review – As of end January 2010

Appendix

Table 2 – Targeted Asset Allocation
  Neutral Allocation
(Equities: Bonds)
Current Targeted Allocation
(Equities: Bonds)
Conservative 10:90 20:80
Moderately Conservative 30:70 40:60
Balanced 50:50 60:40
Moderately Aggressive 70:30 80:20
Aggressive 90:10 100:0
Source: iFAST Compilations

Table 3 – Equity Market Allocation
  Neutral Allocation Current Targeted Allocation
US 25.0% 25.0%
Europe 25.0% 25.0%
Japan 7.0% 5.0%
Asia ex Japan 14.0% 14.0%
Global Emerging Markets 29.0% 31.0%
Source: iFAST Compilations

Table 4 – Bond Market Allocation
  Neutral Allocation Current Targeted Allocation
Cash / Money Market 0.0% 0.0%
Singapore / SGD Bias 30.0% 30.0%
Global Bonds 25.0% 15.0%
Asian Bonds 25.0% 25.0%
Emerging Market Debt 10.0% 15.0%
High Yield 10.0% 15.0%
Source: iFAST Compilations

iFAST and/or its licensed financial adviser representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the article, or any unit trusts or Singapore Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website. If you have any queries about the above contents, please contact iFAST.