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FSM Portfolios: September's Slumber October 18, 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 september 2011
The MSCI AC World index fell by -2.2% in September in SGD terms, with local currency losses of -9.7% being largely erased by a sudden appreciation of the USD against the SGD. The S&P 500 (US) and Nasdaq 100 index gained 0.5% and 3.3% respectively on the back of substantial strength in the USDSGD rate. Asian and Emerging Market equities were beaten down yet again as worries that global economic growth might stall and hurt the regions saw investors sell-off riskier assets. The MSCI Asia ex-Japan index lost -6.3%, while the MSCI Emerging Markets index shed -7.8% as Brazil, Russia and China fell -14.6%, -14.7% and -10.1% to be amongst the worst performing indices for the month of September. All performance figures are in SGD terms for the respective indices as of end September.

twisT & rise america!
In the US, the Fed announced its plans to embark on what the markets deemed "Operation Twist". In summary, the Fed was seeking to purchase USD 400 billion of longer-dated treasuries by selling its existing holdings of shorter-term securities in an attempt to bring down longer-term rates, cutting the cost of mortgages and business loans with the intention of spurring consumption and investment by households and the private sector respectively. During the month of September, US treasury yields hit record lows as yet another bout of risk aversion saw investors flock to US Treasuries, underlining yet again their safe-haven status. The rush to purchase US Treasuries as well as the safety seen in the USD, saw the Dollar Index (a trade-weighted basket of 7 currencies) spring into life. The Dollar Index rose by 5.99%, with the USD specifically rising against the EUR & SGD by 7.29% and 8.54% respectively as of the end of September.

european woes continued to mount
Over in Europe, continued fears over the sovereign debt crisis continued to impact markets. Despite the European Central Bank's on-going purchases of sovereign debt, the crisis has seen the yields of Spanish as well as Italian debt soar as investors continued to sell-off the sovereign bonds of the two troubled nations on fears of them becoming Greece Mk II. The European Central Bank held its monetary policy meeting on 21 September and put on hold its rate hike cycle. In the meeting, out-going ECB President Jean Claude Trichet significantly altered his inflation targeting stance, highlighting “particularly high uncertainty and intensified downside risks” as he sought to position the ECB for a potential rate cut amidst deteriorating conditions. The coordinated reopening of credit lines by the ECB and several other major central banks for the European financial industry helped dampen liquidity concerns linked to the region’s debt crisis.

Sentiment across Europe remained depressed with the Eurozone ZEW survey dipping further into recessionary levels and the Eurozone consumer, economic and industrial confidence sentiment surveys in negative territory. Purchasing Manager indices for both manufacturing and services fell below the 50 level mark which suggests a contraction in both manufacturing and services output, signalling the likelihood of a fall in economic activity in 3Q 2011.

earnings and policy summits
October will be a crucial month in relation to 3Q earnings of companies as well as the discussions and meetings between the European Union's leaders, the G20 and the IMF. With much talk about the global economic weakness and its impact on the earnings of companies, earnings season will give investors significant insight into just how damaging the turbulent last quarter has been for the bottomline of companies. Policy summits involving officals of the EU, G20 and the IMF are expected to focus on the intentions and plans of the EU in resolving a debt crisis that is threatening to plunge the world back into recession. National leaders and officials of the G20 and IMF expected to be supportive of efforts to stem the crisis with the international bodies possibly being involved in a globally coordinated solution.

 

Table 1: performance for the past 6 months
Monthly Returns Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive
30-Sep-11

-1.6%

-1.3% -1.1% -2.6% -2.0%
31-Aug-11 -2.7% -4.0% -4.6% -6.5% -7.7%
31-Jul-11 -0.1% -0.5% -0.9% -0.7% -1.1%
30-Jun-11 -0.5% -0.9% -1.2% -1.2% -1.6%
31-May-11 0.4% 0.3% 0.2% -0.7% -1.0%
30-Apr-11 0.9% 1.0% 1.0% 1.7% 1.9%
Source: iFAST Compilations

Table 2: Portfolio returns overview

  Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive
Rolling 1-year chain-linked performance 0.8% -0.2% -0.5% -2.5% -3.3%
Year-to-date -1.6% -3.9% -5.6% -8.3% -10.5%
2010 6.2% 6.6% 6.8% 4.4% 4.3%
Chain-linked performance since revamp (end Aug 2009) 8.5% 7.0% 6.2% 0.9% -0.2%

Source: iFAST Compilations (as of end Aug 2011)

market panic sent global markets lower, again
As with previous periods of uncertainty and panic, global equity markets saw investors sell off yet again as market uncertainty sparked a run for cash and to US treasuries. While the problems in Europe are not new, markets were disappointed by talks of a larger than agreed haircut for private holders of Greek debt. Over in the US, disappointment reigned as markets had been hoping for more from Fed Chief Ben Bernanke and weak economic indicators sapped confidence. As a result, all five recommended portfolios posted losses in September, with the Moderately Aggressive suffering the heaviest losses of -2.6% as its European and Asian sovereign bond exposure weighed heavily on its performance. The Aggressive portfolio lost -2.0% compared to the -1.6% loss for the Conservative portfolio. The balanced portfolio was the best performing potfolio with a loss of -1.1%. Despite horrid equity performances, our long-standing call to underweight bonds vis-à-vis equities remains intact, given that yields remain low and equities are cheaply priced.

Among all the funds within the five portfolios, the worst performing fund for September was the FTIF-Templeton Glb Bond A(mdis) SGD-H1 fund which lost -8.3% as it was heavily invested in Asian Sovereign bonds, particularly Korean sovereigns, which were sold off as investors sought refuge in US treasuries. Henderson Hzn Pan Euro Eq A2 EUR was the second worst performing fund with a loss of -4.3% as equity markets in the Eurozone continued to be decimated for obvious reasons.

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 UOB United SGD Fund 24.0% 18.0% 12.0% 10.0% -
Global Bonds FTIF-Templeton Glb Bond A(mdis) SGD-H1 12.0% 9.0% 6.0% 10.0% -
Asian Bonds United Asian Bond Fund SGD 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% 28.0% 42.0% - -
Global Emerging Market Equity Aberdeen Global Emerging Markets 10.0% 7.0% 12.0% 30.0% 38.0%
Asia Ex-Japan Equity Aberdeen Pacific Equity - 5.0% 6.0% 10.0% 12.0%
US Equity Fidelity America USD - - - 20.0% 25.0%
European Equity Henderson Hzn Pan Euro Eq A2 EUR - - - 16.0% 20.0%
Japan Equity LionGlobal Japan Growth Fund - - - 4.0% 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 with monthly factsheets archived up to 1 year.

previous months portfolio summary

  1. August 2011 - FSM Portfolios: August's Summer Sale
  2. April 2011 - FSM Portfolios: April, the best trading month year-to-date
  3. March 2011 - FSM Portfolios: Developed markets equity dragged overall performance
  4. February 2011 - FSM Portfolios: Diversification does reduce systematic risk
  5. December 2010 - FSM Portfolios: And the winner is….. the BALANCED PORTFOLIO!
  6. November 2010 - FSM Portfolios: Performance mostly flat on weak sentiments
  7. September 2010 - FSM Portfolios: Sep was probably the best month for most equity markets in recent times
  8. August - FSM Portfolios: Equity market volatility evident in portfolio performance
  9. July 2010 - FSM Portfolios: Risk takers rewarded with bigger winnings
  10. June 2010 - FSM Portfolio: Supplementary portfolio can be a double edged sword
  11. May 2010 - FSM Portfolio: Bonds helped preserve portfolio’s capital
  12. April 2010 - FSM Portfolio: It pays to be safe

Appendix

Table 1 – 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 2 – Equity Market Allocation
  Neutral Allocation Current Targeted Allocation
US 25.0% 25.0%
Europe 25.0% 20.0%
Japan 7.0% 5.0%
Asia ex Japan 14.0% 12.0%
Global Emerging Markets 29.0% 38.0%
Source: iFAST Compilations

Table 3 – 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.