Endowus core portfolios — Q1 2024 performance comparison

Endowus Flagship Portfolios — Cash/SRS

Key performance highlights: The Flagship Cash/SRS Portfolios delivered positive returns in the first quarter of 2024, displaying a strong start for the year. The 100% Equity Portfolio performed well, although albeit a slight lag behind its benchmark, the MSCI All-Country World Index (ACWI), by approximately 0.6 percentage points. Conversely, the 100% Fixed Income Portfolio outperformed the Bloomberg Global Aggregate Index by a significant 1%.

The 100% Equity Portfolio encountered headwinds in the first quarter due to its inherent structural biases—namely its focus on value, along with a slight overweight in emerging markets and small-cap stocks—resulting in performance that trailed its benchmark. The Amundi Prime USA fund and the iShares US Index fund emerged as the top performers within the equity component, closely mirroring the performance of the U.S. indices they track. Conversely, the Dimensional funds faced challenges, primarily due to their exposure to the size and value factors.

The 100% Fixed Income Portfolio outperformed the global fixed income market during the first quarter of 2024 largely due to its higher allocation to corporate bonds compared to the index. Corporate bonds demonstrated superior performance to sovereign debt. The best-performing fund in the fixed income sleeve in the first quarter was the PIMCO GIS Emerging Market Bond fund, followed by the PIMCO GIS Income fund.

Endowus Flagship Portfolios — CPF 

Key performance highlights: The Flagship CPF 100% Equity Portfolio generated strong returns during the first quarter of 2024, but underperformed its respective benchmark. The 100% Fixed Income Portfolio, in a similar fashion to the broad fixed income market, posted slight negative returns and lagged the broad global fixed income market by a small margin.

The 100% Equity Portfolio’s weaker performance was mainly due to the FSSA Dividend Advantage Fund and the Schroder Global Emerging Market Opportunities Fund. The FSSA Dividend Advantage returned slightly more than 1% in the first quarter; with major detractors being sector allocation and its India holdings. The Schroder Global Emerging Market Opportunities fund lagged relative to other funds in the line-up as its primary focus market was EM.

The 100% Fixed Income Portfolio performed almost in line with the broader fixed income market. The weakest performing fund in the sleeve during the quarter was the Franklin Templeton Western Asset Global Bond fund. The fund typically runs at a slightly longer duration than the Bloomberg Global Aggregate Index. The longer duration detracted from relative performance as yields increased over the quarter.

Endowus ESG Portfolios 

Key performance highlights:  During the first quarter of 2024, our ESG Portfolios showcased a range of positive returns, from low to high single digits. This performance reflects our commitment to integrating environmental, social, and governance (ESG) principles while striving for competitive financial returns.

The Equity Portfolio experienced some underperformance relative to its benchmark. This was primarily due to security selection within the industrial and financial sectors. Notably, our investment in the Schroder ISF Climate Change Fund faced challenges, as the climate change theme struggled during the quarter. Conversely, the Mirova Global Sustainable Equity Fund demonstrated notable outperformance, helping to mitigate broader portfolio challenges.

In contrast, the Fixed Income Portfolio outperformed its benchmark, benefiting from its strategic shorter duration positioning and an overweight allocation to credit. This strategy proved advantageous as market expectations for rate cuts were delayed and economic data remained robust. The United Sustainable Credit Income Fund emerged as a standout performer, particularly through its investments in the European credit market and the banking and insurance sectors.

The Endowus ESG portfolios not only focus on financial returns but also on promoting positive societal and environmental impacts. We are committed to being responsible stewards of capital, as demonstrated by our active review of ESG data to inform our investment decisions.

For instance, the ESG 100% Equity Portfolio aligns better with the United Nations Sustainable Development Goals (UN SDGs), showcasing lower greenhouse gas emissions and enhanced board gender diversity compared to the MSCI ACWI.

In the realm of fixed income, our ESG 100% Fixed Income Portfolio emphasises investments that contribute to environmental sustainability and social well-being. The PIMCO GIS Climate Bond Fund, for example, allocates over 75% to green bonds. Additionally, the UOBAM United Sustainable Credit Income Fund prioritises investments in companies and issuers supporting key UN SDGs in particular SDGs 3, 8, 9, and 11 — good health & well-being; decent work and economic growth; industry, innovation, and infrastructure; and sustainable cities and communities. The JP Morgan Global Bond Opportunities Sustainable Fund tilts towards companies or issuers with positive ESG characteristics.

Endowus Factor by Dimensional Portfolios

Key performance highlights: Despite a relatively stronger performance in March, the Factor 100% Equity Portfolio underperformed its benchmark over the quarter. The Factor 100% Fixed Income held up well and finished the quarter slightly positively compared to the benchmark’s negative returns.

The Equity Portfolio’s allocation to the Emerging Markets and the Pacific Basin Small Companies Fund were the primary drivers of its underperformance relative to the ACWI benchmark. Additionally, the Portfolio’s bias towards smaller caps detracted this quarter.

The Fixed Income Portfolio outperformed the Bloomberg Global Aggregate Index and closed the quarter in positive territory. The portfolio’s allocation to the shorter duration funds, the Global Short-Term Investment Grade Fixed Income Fund and the Global Short Fixed Income Fund cushioned the portfolio as the market gave back some of its returns. Additionally, the portfolio’s overweight to Credit contributed to relative performance.

Factor premia are long-term in nature and investors that maintain exposure to them over a longer-term horizon are generally rewarded. However, this does mean that there may be short-term periods of underperformance from time to time.

Source: MSCI

Endowus Satellite Portfolios

Launched in November 2021, the Endowus Satellite Portfolios are designed to supplement the core portfolios and offer clients specific exposure to opportunities in selected regions, themes, asset classes, and trends. In taking a core-satellite approach, most investors should allocate the bulk of their asset allocation to the core portfolios. 

China Equity and Fixed Income Portfolios 

Key performance highlights: 

The Endowus China Equity Portfolio underperformed the benchmark over the quarter. While names within the Industrials, Information Technology and Consumer Discretionary sectors were additive to performance,  allocations to Consumer Staples and Healthcare dragged on returns.

From a regional allocation perspective, the Portfolio benefitted from Taiwan’s strong growth as its Taiwan holdings were driven by ongoing investor demand for AI-related companies. On the other hand, the Portfolio’s A-shares allocation continued to hurt with weak sentiment surrounding the outlook for the Chinese economy. We maintain a diversified approach from both market and sectoral perspectives, ensuring our clients gain access to the structural growth opportunities available in China.

The Endowus China Fixed Income Portfolio registered positive returns over the quarter, benefitting from the tightening of credit spreads across Asia. 

Low Volatility Fixed Income Portfolio 

Key performance highlights: The Low Volatility Fixed Income Portfolio ended slightly in positive territory and performed in line with its reference benchmarks during this quarter. The longer duration allocations, the Legg Mason Brandywine Global Income Optimiser Fund and the PIMCO GIS Total Return Bond Fund, detracted while the Asian exposure through the UBS Asia Flexible fund contributed to relative performance. 

Megatrends Portfolio 

Key performance highlights: Equity markets continued to rally in the first quarter of 2024. The Megatrends Portfolio participated in the rally with a positive performance but underperformed the MSCI All Country World Index benchmark. 

The lack of meaningful exposure to the Magnificent Seven stocks, a majority of which performed strongly on the back of good corporate earnings, contributed to the underperformance. On a fund-specific basis, the BGF Nutrition Fund continued to be a detractor, while the AB International Healthcare Fund was the best-performing fund over the quarter.

The BGF Nutrition Fund continues to be affected by stock-specific issues, with Archer-Daniels-Midland declining by more than 20% in January and Nestle by almost 9% in February. Archer-Daniels-Midland fell on news that its CFO was placed on leave following investigations into accounting practices within its Nutrition segment, while Nestle was affected by ongoing litigation over its water products in France.

As part of the investment office’s ongoing efforts to optimise our portfolios, the Megatrends Portfolio underwent a Recommended Portfolio Change (RPC) at the end of February. Four funds, Thematics Meta, Blackrock Nutrition, Schroder Global Climate Change and AB International Healthcare were removed. Five new funds, which the investment office felt were better placed to capture and reflect underlying trends, were added to the portfolio. For more details, please refer to the article here.

Technology Portfolio 

Key performance highlights: The Technology portfolio achieved a 9.9% return in the first quarter of 2024, benefiting from a positive environment for technology stocks. The anticipation of potential Federal Reserve rate cuts within the year, along with growing enthusiasm for the advancements in artificial intelligence (AI), played significant roles in propelling the technology sector to the top of the performance charts during this period.

Amidst the market rally, the underlying fund managers adopted a cautious stance, cognizant of the mixed macroeconomic indicators, such as the persistently high inflation and uncertainties about the timing of rate cuts, as well as elevated valuations within the tech sector after its sustained rally. This prudence resulted in a performance that was more subdued in comparison to the broader market – the underlying funds focused on investing in high-quality businesses poised to benefit from the tech rally while managing risks in anticipation of potentially more volatile markets.

Nevertheless, the underlying funds, including notable performers like BGF World Tech and Franklin Tech, demonstrated favourable performance throughout the quarter. These funds displayed strong performance on the back of effective stock selection in industries such as semiconductors.

Global Real Estate Portfolio

Key performance highlights: 

The Global Real Estate Portfolio retracted after a strong year-end rebound in 2023, generating a return of -1.1% in the first quarter of 2024. Most of the underperformance came in January with the portfolio down -2.8% as the market expectations of rate cuts moderated with the market expecting fewer cuts than at the end of last year.

The Blackrock BSF Global Real Assets Securities Fund underperformed its respective benchmark for the quarter as stock selection and sector allocation both detracted.

‍Endowus Income Portfolios

Key performance highlights: 

At the end of November 2023, we released the recommended portfolio changes to the Income Portfolios. The objective was to introduce enhancements to the Income Portfolios through de-risking, further diversification and cost reduction. Target payout ranges remain the same. The performance update going forward would be for the new Income Portfolios. It would also be against revised benchmarks, using a more credit-heavy fixed income benchmark, Bloomberg Global Aggregate Credit Index, to represent the fixed income component. 

The Stable Income Portfolio achieved a positive 0.5% return in Q1 2024, outpacing the broader credit market. This outperformance came on the back of strong fund selection, with the majority of underlying funds surpassing their benchmarks. Additionally, the portfolio’s strategic allocation to emerging markets debt bolstered the portfolio's relative performance, underscoring the portfolio’s effective asset allocation.

The Higher Income Portfolio posted a positive 1.4% return in Q1 2024, slightly trailing the 20-80 benchmark. This underperformance was primarily due to the equity allocations, as value and high dividend factors, along with real assets sectors and emerging markets, trailed the broader equity market. However, the fixed income segment of the portfolio did well, outperforming the global fixed income market largely due to its shorter duration stance and high yield credit exposure.

The Future Income Portfolio delivered a robust 3.7% return in Q1 2024, despite falling short of the 40-60 benchmark. The portfolio's equity component’s tilts to low volatility and value stocks were the main drivers of this relative underperformance. Conversely, the fixed income component mirrored the success of the Stable Income Portfolio, outshining the broad fixed income market due to similar strategic decisions.

All three Income Portfolios are achieving their payout targets.

• Actual payout has remained stable despite the fluctuation of prices across the three portfolios. Volatility in price returns will result in a mark-to-market change (decrease or increase) in the portfolio value, but does not impact the actual coupon payments or dividend payout from the underlying funds. 
• Yields in the fixed income market continue to remain high, despite anticipation of future rate cuts.

Endowus Cash Smart Portfolios

Key performance highlights: The Cash Smart Portfolios maintained stable, positive returns in Q1 2024.

Cash Smart Secure delivered a 0.91% return in the first quarter of 2024, continuing its track record of stable performance. Over the past year, this portfolio has delivered quarterly returns in the range of 0.8-0.9%, benefiting from the high-rate environment. However, it is worth noting that yields from the two underlying cash/money market funds, Fullerton SGD and LGI Enhanced Liquidity, have shown signs of reaching their peak and have slightly declined. 

Cash Smart Enhanced reported a return of 0.87% in the first quarter of 2024. This period witnessed slight volatility, primarily attributed to the United SGD fund's exposure to longer-duration Asian credit instruments, which differentiates it from the other two underlying cash/money market funds (MMFs). While this exposure has historically provided additional returns—evidenced by the Enhanced portfolio's performance over the Secure portfolio in 2023—it experienced a minor pullback in the first quarter of 2024.

Cash Smart Ultra achieved a 0.99% return in the first quarter of 2024. Funds such as PIMCO Low Duration Income, which benefited from its exposure to securitised instruments, provided meaningful upside. The other underlying funds, including the LionGlobal Enhanced Liquidity fund, helped provide stability and reliability to the yield generation.

We have been observing signs of yield peaking and staying at the prevailing high levels, as Central Banks and policymakers around the world near the end of their rate hike cycles. Cash Smart Portfolios are largely exposed to USD and SGD market rates that are widely believed to stay elevated for longer. The Cash Smart Portfolios can capitalise on the prevailing higher levels of yield, while the active management of the underlying fund managers allows the funds and ultimately, the Portfolio, to benefit from capital appreciation opportunities when the markets enter a rate cut cycle in the upcoming months or years.

For more on the market outlook, click here. Watch our webinar on Q1 2024 performance and market insights here.

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