The market place have been nothing short of challenging this year. Asset prices have corrected substantially on the back of aggressive rate hikes fired by major Central Banks to quell inflationary pressure – amidst the rate hiking cycle we are in today, recessionary fears have moved to the forefront of the investment world. On this note, we believe that many investor’s portfolio would perhaps be in the red. We have therefore launched the UT Starter Pack on Fund Mall on 8th July 2022 to allow investors of our platform to essentially build a portfolio that consists of four different funds that has been cherry picked to weather the current macroconditions.
By investing in the UT Starter Pack, investors will automatically have a portfolio that is geographically diversified and hold exposure to various asset classes. Additionally, the UT Starter Pack also places a heavy emphasis on Environmental, Social and Governance (ESG) qualities that seeks to generate superior returns over the long-term investment horizon. Now that we have a better understanding of what the UT Starter pack is, we will be looking at the performance of the underlying funds in the following section.
Chart 1: Our UT Starter Pack funds’ performance. Source: Bloomberg
Fidelity America A fund SGD
Trading within the US equity market have been a volatile one. Equities decline to kick start the month as market participants interpreted Chairman Powell’s speech at the press conference to be a hawkish one. However, as the month goes by, sentiments were uplifted and a rally was witnessed – US equities as gauged by the S&P500 Index ended the month with returns of 2.61% in SGD terms. This came during a period where positive developments on the US inflation front raised hopes that the Feds will ease back on aggressive monetary policy as inflationary pressures appears to be peaking.
Chart 2: US CPI YoY have begun to decline. Source: Bloomberg
True enough, market participants’ expectations for Feds to moderate the size of rate hikes have come through. The Feds have signalled that they will slow the pace of interest rate increases in December while stressing that borrowing costs will need to keep rising and remain restrictive for some time to beat inflation. That being said, the Fidelity America A fund SGDthat invests principally in US equity securities and at least 50% of the net assets invested in securities with the ability to maintain sustainable characteristic was unable to register positive returns akin to the S&P500 benchmark gauge.
In our opinion, this was due to the greenback depreciating against the Singapore dollar as investors piled into riskier assets after a softer-than-expected US inflation reading tempered expectations for the Feds to keep raising rates as quickly – a rising domestic currency, in this case, SGD, will mean foreign investments have lower returns when converted back to local currency.
Chart 3: The greenback have weakened on hopes that the Feds will moderate the size of rate increase. Source: Bloomberg
Chart 4: Fund performance vs S&P500 Index. Source: Bloomberg
Blackrock ESG multi-asset fund
There are different types of funds in the fund universe and multi-asset fund is one that perhaps some investors might not know or heard of. A multi-asset fund is one that offers exposure to a broad range of asset classes, often offering a new level of diversification typically associated with institutional investing. Multi-asset funds may invest in a number of traditional equity and fixed income strategies, index tracking funds, financial derivative and alternative investments. This diversity allows portfolio managers to potentially balance risks with reward and deliver steady, long term returns for investors particularly in volatile markets.
Now that investors have a clearer understanding what a multi-asset fund is, let us touch on the performance of the fund. Broadly, we note that the fund has a heavy overweight in US equities. Given the encouraging performance of US equities as mentioned above, we believe that the Blackrock ESG multi-asset fundwhich invests in multi-assets consistent with principles of ESG have stood to gain. Nonetheless, investors may be wondering why did the fund record a softer return as compared to the S&P500 benchmark gauge. In our view, this is likely due to the stronger performance of US equities being offset by the weaker performance of other asset classes within the portfolio.
United Singapore Growth fund
Singapore’s economy is benefitting from the post pandemic reopening both at home and abroad – latest economic data reported spells positive. Growth has picked up in 3Q after contracting the previous quarter and the labour market continues to tighten, which is an encouraging sign. Moving ahead, the outlook for the nation appears sanguine as well. As tourism continues to gather momentum, a fall in unemployment and rebound in services is expected.
Recognising that encouraging data do provide confidence to investors, the main factor that is driving Singapore’s equities performance is the tighter monetary conditions we are in today, in our view. Our view is built on the fact that the STI Index has a sector weighting of almost 50% in the financial Sector. In a world where rates are on a upward trajectory, Singapore included, it spells positive for banks as higher rates can lead to higher net interest margins and therefore an expansion in profitability. Therefore, United Singapore Growth Fundwith an investment objective to achieve medium to long term capital appreciation and to receive regular income distribution during the investment period through investing in shares of companies listed or quoted on the Singapore Exchange has benefitted – the financial sector makes up almost half of the fund sector weighting, akin to the STI Index.
Aberdeen China A shares sustainable equity fund
When we look at China from an economic standpoint, macro data confirms that the nation is struggling to meet its growth target this year. Retail sales have slowed sharply, property investment extended a slide and unemployment rate has risen unexpectedly – the poor readings from these data points were all thanks to persistently high covid-19 case counts keeping lockdown measures in place. In essence, the bleak outlook ahead have soured sentiments of market participants. In this vein, there are finally some positives for market participants to cheer on as of late.
China has signalled for a transition away from the harshest covid curbs, re-emphasizing a revised playbook that relies more on targeted measures to control the virus rather than the sweeping lockdowns and blanket testing regimes that have become the norm. what followed was a ferocious rally in Chinese equities as the statements from top government and health officials indicates that they are look to prepare the Chinese population for a potential exit from Covid zero. Hence, the Aberdeen China A share sustainable equity fund aiming to seek a combination of growth and income by investing in China listed companies was able to top the table among our funds in the UT Starter Pack, delivering investors a return of 7.55%.
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