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FSM Portfolios - Feb's Fab Performance & Key Changes to Aggressive Portfolio March 9, 2012
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. We have made a key change to our Aggressive Portfolio! Read on to find out more!
Author : iFAST Research Team


FSM Portfolios - Feb's Fab Performance & Key Changes to Aggressive Portfolio

 

Market Summary for february 2012
February continued January's good start to the year with global stock markets continuing its upward climb. Investor sentiment together with risk appetite continued to improve, propelling global equities higher by 4.0% with Europe and Global Emerging Markets posting the highest gains of 5.1% and 5.0% respectively for the regions under our coverage. GEMs were led by a resurgent Russia and Thailand, who posted returns of 9.1% and 7.8% respectively. Greater China performed well too, with Taiwan, Hong Kong and China posting returns of 8.0%, 5.5% and 5.3% respectively. Apart from Europe, the remaining developed regions (US and Japan) ended the month on a positive note, with gains of 4.0% and 3.2% respectively. For the second consecutive month, no market under our coverage posting losses.

[All returns are in SGD terms]

us: strengthening economic data
In the US, economic data released over the course of the month continued to show an improving economy and paved the way for the S&P 500 to advance.Economic data relating to consumers, including retail sales, consumer credit as well as job growth pointed to an increasingly healthy consumer sector. January retail sales grew 0.4% as consumers expanded their credit by USD 19.3 billion in December 2011 while jobs growth remained steady and on the mend, with January creating 243,000 jobs in the month alone.

4Q 2011 GDP was revised upwards to an annualised 3% quarter-on-quarter rate, with personal consumption expenditures leading the way. Despite the better than expected data, Ben Bernanke's testimony to Congress revealed worries (albeit subdued) of continued issues in the job and housing markets, highlighting concerns that rising gas prices had the potential to crimp consumer spending.

Turning our attention to corporates, as of the end of February, earnings growth in the US is expected to remain healthy with rates of 9.5% in 2012 and 11.7% in 2013.

europe: here comes the mild recession

Over in Europe, Eurozone GDP contracted in 4Q 2011 on a quarter-on-quarter basis by -0.3%, but grew on a year-on-year basis by 0.7%. Amongst the components of the economy hit hardest were the household spending, down -0.4% and investments which fell by -0.7% quarter-on-quarter. The European Commission's forecast of a -0.3% contraction for 2012 means the body has abandoned a November forecast which had penciled in a 0.5% growth rate for the Eurozone, although lower than our expected contraction of -0.6%, is in the same direction as we embarked on back in August last year.

Despite facing major headwinds, the ECB's second Long Term Refinancing Operation (LTRO) saw 800 banks take up EUR 529.5 billion of loans, approximately EUR 40 billion more than the first LTRO held back in December 2011. The news was received favourably by bond market investors as Italian and Spanish long-term yields declined. Consequently, the Italian 10-year bond yield declined by 59.3 bps over the week ended 1 March 2012 to 4.951%, the lowest levels since August 2011, while Spanish yields traded near the lowest levels since November 2010. The significant declines in Italian and Spanish debt yields suggest that investor confidence has gained substantially since late 2011.

We continue to view Europe as "Attractive" (3.5 Stars) and necessary for portfolio diversification, for despite the mild recession that is on the cards, as to quote the European Union Economic and Monetary Commissioner Olli Rehn, the situation in European financial markets "remain still rather fragile, but there are also signs of stabilization".

Asia ex japan: accomodative policy provides support

Across Asia, accomodative policy from governments and central banks alike across the region has helped bolster economic growth. In China, the People’s Bank of China (PBoC) announced that it would cut benchmark reserve requirement ratios (RRR) by 50 bps on 19 February, effective on 24 February. Despite implementing reverse repo operations in order to inject liquidity into the banking system in January, January figures such as new loans and M2 money supply growth missed market estimates by a long shot. As the positive effects were short lived, the RRR cut was a timely measure to ease pressure from the banking system and we expect such policy fine-tuning to continue throughout the year.

In Japan, The Bank of Japan (BoJ) eased its monetary policy by raising the cap of its asset purchases program by 10 trillion yen to reach 65 trillion yen, and followed in the foot-steps of the Fed by announcing a targeted inflation rate. The latest attempt to jump-start its economy comes as the central bank "has judged it necessary to further support recent positive developments from the financial side and better ensure the economy's return to a moderate recovery path." Previously, the cap for purchasing government and corporate bonds was set at 55 trillion yen, of which 43 trillion had already been used. The 10 trillion yen increment is seen to be targeted at long-term government bonds, once again mirroring actions undertaken by the Fed. Through buying assets and injecting more money into financial markets, the BoJ seeks to encourage financial institutions to increase lending to companies for expanding operations such as building factories.

In South East Asia, Thailand's economy expanded by 0.1% for 2011, mainly due to the devastating floods, completely missing targets of 1.0% and 1.5% set by its government and central bank. However, we expect Thailand's economic growth to rebound in 1H 2012 thanks to support by the government's THB 350 billiuon post flood budget and the central bank's monetary policy easing. Monetary policy was also eased in Indonesia as the central bank there cut its benchmark interest rate by 25 basis points despite its economy growing at its fastest pace since 1998, growing by 6.46% in 2011 on a year-on-year basis, a move which could be seen as protectionary.

In Singapore, revised GDP figures indicated that the economy expanded by 4.9% in 2011, following a blistering 14.8% expansion in 2010. Even as the economy contracted by -2.5% in 4Q 11 on a quarter-on-quarter basis (following a 2% expansion in 3Q 11), year-on-year figures paint a more positive picture, with the economy posting an expansion of 3.6% in 4Q 11. The manufacturing sector posted 9.2% year-on-year growth in 4Q 11, while construction gained 2.9%. Nevertheless, growth in 2012 is expected to be more modest considering the “challenging environment” in the global economy, and the MTI has retained a growth forecast of 1-3% for 2012.

GEms: Brazil & russia leading the way

Global Emerging Markets had yet another good month, returning 5.1% in the month of February. Russia benefited from rising oil prices and "peacefulness" in the demonstrations against Vladimir Putin and his government. With prices of Ural oil, which is the benchmark for Russian oil exports rising by 16.05% in 2012 and 10.87% in February alone, 2012 has gotten off to a rather good start for the Russian energy sector which has close to a 55% weight in the RTSI$ Index.

In Brazil, the critical pillar of the economy, consumer spending, continued to grow healthily with retail sales rising by 6.7% on a year-on-year basis in December after a 6.8% growth rate in November. Outstanding loans also continued to grow in the Latin American nation, housing loans led the way with a year-on-year growth rate of 44.5% for the second month running. Meanwhile, Brazil’s economic activity began to reverse its slide as the government’s attempts to boost economic activity appeared to be reaping dividends. Industrial production, which prior to November had been contracting for 3 months, rose yet again in December 2011, registering a 0.90% rise on a month-on-month basis after rising 0.20% in November 2011.The economic activity index strengthened in December, registering a 0.57% growth rate after November posted an upwards revised rate of 1.29%.

We continue to view Global Emerging Markets favourably.

 

Table 1: performance for the past 6 months
Monthly Returns Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive
29-Feb-12 1.9% 2.4% 2.9% 3.9% 4.3%
31-Jan-12 2.2% 2.0% 2.2% 4.7% 4.6%
31-Dec-11 1.7% 2.1% 2.6% 1.8% 2.1%
30-Nov-11

-1.6%

-2.2% -2.9% -3.3% -3.9%
31-Oct-11

2.6%

3.5% 4.7% 6.0% 6.8%
30-Sep-11

-1.6%

-1.3% -1.0% -2.6% -2.0%
Source: iFAST Compilations

Table 2: Portfolio returns overview

Conservative
Moderately Conservative
Balanced
Moderately Aggressive
Aggressive
Rolling 1-year chain-linked performance 3.8% 3.5% 4.0% 2.6% 2.0%
YTD 4.1% 4.5% 5.2% 8.8% 9.1%
2011 -0.2% -1.6% -2.5% -6.7% -8.1%
Chain-linked performance since revamp (end Aug 2009) 15.6% 15.9% 16.9% 13.1% 13.1%

Source: iFAST Compilations (as of end Feb 2012)

february's leap!

2012 saw markets start the year with an exceptionally strong rally led by riskier assets, February continued with what we saw in January. With Europe, Global Emerging Markets, Asia ex Japan and the riskier segments of bonds such as High Yield and Emerging Market Debt outperforming other markets and bond segments, our more aggressive portfolios were the better performers amongst our 5 recommended portfolios.

The Aggressive portfolio posted the largest gain of 4.3% as its heavier weighting in Fidelity America USD and in equities in general gave it an edge against our 4 other portfolios. Our long-standing call to underweight bonds vis-à-vis equities remains intact despite the recent market rally given that bond yields remain low and equities continue to be cheaply priced.

Among all the funds within the five portfolios, the best performing equity funds for January was Fidelity America USD, Aberdeen Global Emerging Markets and Aberdeen Pacific Equity which gained 5.6%, 4.0% and 4.5% respectively. As for our fixed income funds, our more volatile FTIF-Templeton Glb Bond A(mdis) SGD-H1 (as explained in this article) returned 2.9%, while our fund pick for the High Yield and Asian bond spaces, Eastspring Monthly Income Plan Cl A and United Asian Bond Fund SGD provided us with gains of 2.3% each. None of our funds posted losses for the month.

Investors interested in a complete picture of our best performing fund for the month, Fidelity America USD, an informative and a great write-up by our Content Team specialist Jasmine, can be found here:
Recommended Fund Review: A Resilient Equity Fund That Consistently Outperforms [Part I]
Recommended Fund Review: A Resilient Equity Fund That Consistently Outperforms [Part II]

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

key changes to our aggressive portfolio

We have altered our asset allocation for our Aggressive Portfolio. Changes we have made are as a result of shifting 10% of the portfolio into the safer and more stable fixed income classes of Global Bonds as well as Singapore/SGD bias. We aim to stabilise the Aggressive portfolio's volatile returns and diversify its asset allocation. The weightage assigned to Singapore/SGD bias and Global Bonds are consistent with those of our Moderately Aggressive Portfolio. Moving forward, we expect to see the changes we've made to smooth out the Aggressive portfolio's returns and reduce its volatility.

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% 5%
Global Bonds FTIF-Templeton Glb Bond A(mdis) SGD-H1 12.0% 9.0% 6.0% 10.0% 5%
Asian Bonds United Asian Bond Fund SGD 20.0% 15.0% 10.0% - -
Emerging Market Debt UOB United Emerging Markets Bond Fund 12.0% 9.0% 6.0% - -
High Yield Eastspring 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% 34.0%
Asia Ex-Japan Equity Aberdeen Pacific Equity - 5.0% 6.0% 10.0% 11.0%
US Equity Fidelity America USD - - - 20.0% 23.0%
European Equity Henderson Hzn Pan Euro Eq A2 EUR - - - 16.0% 18.0%
Japan Equity LionGlobal Japan Growth Fund - - - 4.0% 4.0%
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. January 2012 - FSM Portfolios - Jumping January!
  2. December 2011 - FSM Portfolios: Santa Kept Us Waiting in December
  3. November 2011 - FSM Portfolios: Little Pain In November
  4. October 2011 - FSM Portfolios: Oktoberfest Returns!
  5. September 2011 - FSM Portfolios: September's Slumber
  6. August 2011 - FSM Portfolios: August's Summer Sale
  7. April 2011 - FSM Portfolios: April, the best trading month year-to-date
  8. March 2011 - FSM Portfolios: Developed markets equity dragged overall performance
  9. February 2011 - FSM Portfolios: Diversification does reduce systematic risk
  10. December 2010 - FSM Portfolios: And the winner is….. the BALANCED PORTFOLIO!
  11. November 2010 - FSM Portfolios: Performance mostly flat on weak sentiments
  12. September 2010 - FSM Portfolios: Sep was probably the best month for most equity markets in recent times

Appendix

Table 4 – 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 90:10
Source: iFAST Compilations

Table 5 – 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 6 – 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.