Endowus Q2 2024 Performance Review

Endowus Flagship Portfolios — Cash/SRS

Key performance highlights: The Flagship Cash/SRS Equity Portfolio continued to deliver positive returns in the second quarter of 2024 but underperformed the broad global equity markets by a slight margin. The Flagship Cash/SRS Fixed Income Portfolio had slight negative returns in Q2 but still managed to outpace the broad fixed income markets.

The 100% Equity portfolio has structural tilts to value and small caps, via the Dimensional funds and these factor biases detracted from relative performance as value underperformed growth in the US (the largest equity market in the broad benchmark) and small caps lagged their larger peers. The  Dimensional EM Large Cap Core was the strongest fund in the equity line-up, with its focus on small caps and value driving excess returns over the benchmark. The Amundi Prime USA fund and the iShares US Index fund also had a decent quarter by closely tracking the performance of the US indices.

The 100% Fixed Income Portfolio outperformed the global fixed income market during the second quarter of 2024 with its higher allocation to EM debt compared to the index, partly driving excess returns. High yield bonds, which the Portfolio had exposure to, demonstrated superior performance to sovereign debt. The best-performing fund in the fixed income sleeve in the second 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 displayed strong relative performance during the second quarter of 2024 against the global equity markets. The 100% Fixed Income Portfolio, in a similar fashion to the broad fixed income market, posted slight negative returns but eked out a small gain against the benchmark.

The strongest performers in the 100% Equity Portfolio’s equity fund line-up were the FSSA Dividend Advantage Fund and the Schroder Global Emerging Market Opportunities Fund. The FSSA Dividend Advantage rebounded strongly in the second quarter, after a disappointing first quarter. While the Schroder Global Emerging Market Opportunities fund lagged the EM benchmark, it was still a strong contributor to the Portfolio’s performance 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 second quarter of 2024, our ESG Portfolios delivered performance in line with expectation, despite the underperformance against the benchmark. 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 its overweight allocation to the healthcare sector and underweight allocation to the communication services sector. Underneath the impressive 3.4% equity market performance in Q2, was the large performance dispersion between sectors. Broad equity market performance was led by growth and tech related sectors such as communication services and information technology sectors, while more traditional sectors like industrials, materials and real estate recorded negative performance. Notably, security selection by fund managers within sectors was positive in Q2, which helped to offset some of the underperformance. 

The Fixed Income Portfolio slightly underperformed the benchmark. Negative impact from duration was mostly offset by the positive contribution from credit as spreads continued to tighten. While both the JPM Global Bond Opportunities Sustainable Fund and the PIMCO GIS Climate Bond Fund outperformed the benchmark during the quarter, United Sustainable Credit Income Fund lagged due to its longer duration positioning.

The Endowus ESG portfolios not only focus on financial returns but also on promoting positive societal and environmental impact. 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 8, 9, 11 and 1 — decent work and economic growth; industry, innovation, infrastructure; sustainable cities and communities; and no poverty. 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:The Factor 100% Equity Portfolio underperformed its benchmark over the quarter while the Factor 100% Fixed Income outperformed the Global Fixed Income benchmark by a slight margin.

While the Equity Portfolio’s allocation to the Emerging Markets fund contributed to its resilience during the month of April, the fund’s exposure to the Pacific Basin Small Companies Fund was the main detractor from relative performance.

The Fixed Income Portfolio marginally outperformed the Fixed Income Index, helped by its allocations to the shorter duration funds, the Global Short-Term Investment Grade Fixed Income Fund and the Global Short Fixed Income Fund.

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.

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. The Portfolio’s underlying allocation to Consumer Staples detracted the most whereas allocations to Information Technology and Communication Services were the most additive. 

Given that a number of the Q2 winners are listed offshore, allocation to the likes of the Schroder Greater China Fund, FSSA Regional China Fund and Allianz All China Fund contributed. On the other hand, the performance of A-shares, which form the majority of the Portfolio, continues to be weighed down by a soft domestic market and weak sentiment.

The Endowus China Fixed Income Portfolio registered positive returns over the quarter with the Blackrock China Bond Fund contributing the most to performance. The asset class has broadly rallied, a reflection of ongoing worries about weak domestic demand and anticipated interest-rate reductions by the PBOC in efforts to bolster growth. 

Low Volatility Fixed Income Portfolio 

Key performance highlights: The Low Volatility Fixed Income Portfolio ended the quarter flat, performing in line with its reference benchmarks during this quarter. The Legg Mason Brandywine Global Income Optimiser Fund detracted while the shorter duration funds anchored the portfolio’s performance over the period.

Megatrends Portfolio 

Key performance highlights: Equity markets gave back some returns in April, but a recovery in market sentiment drove a strong finish for the quarter. The Megatrends Portfolio underperformed the index, as certain key segments that the Portfolio has exposure to had a weak quarter.

Specifically, GMO Climate Change was a drag on performance, as the clean energy sector remains under pressure with a significant drawdown in June. Prolonged high interest rates and waning enthusiasm for clean energy has been a consistent headwind for the sector in recent quarters. DWS Invest Global Agribusiness was also another detractor, with the fertiliser and agriculture sectors generating negative returns for the quarter. 

On a positive note, The NB Global Megatrends did well over the quarter, outperforming the Global Equity markets by around 3%.

Technology Portfolio 

Key performance highlights: The Technology portfolio achieved a 5.4% return in Q2 2024.

Following a robust Q1, the portfolio experienced some pullback in April. Global equity markets declined overall after stronger-than-anticipated economic data led investors to fear a delay in the easing of monetary policy. The technology sector was the worst-performing sector in April; however, our portfolio's drawdown was more controlled compared to the MSCI ACWI IT benchmark. This was due to the underlying fund managers' cautious stance in anticipation of mixed macroeconomic indicators.

The portfolio rebounded in May and June, buoyed by renewed investor optimism regarding the likelihood of a soft landing. Underlying funds such as the BGF World Tech and Franklin Tech contributed positively, thanks to their allocations to established large-cap companies.

Global Real Estate Portfolio

Key performance highlights: 

The Global Real Estate Portfolio underperformed its respective benchmark over the quarter, retracting 3.2% in the second quarter of 2024. Most of the underperformance came in April with the portfolio declining 3.8% for the month as the market expectations of rate cuts moderated with the market expecting fewer cuts than at the end of last year.

The allocation to Asian Real Estate dragged on performance as Japanese REITs were weighed down by concerns over higher interest rates and profit-taking. The Janus Henderson Horizon Global Property Equities Fund was also a detractor with the industrial sector dragging on the performance, as it plunged 19% in April. 

Endowus Income Portfolios 

Key performance highlights: 

The Stable Income Portfolio achieved a positive 0.3% return in Q2 2024, outperforming the broader credit market by 0.9%. The biggest contributor to the relative outperformance was the portfolio’s allocation to flexible bond funds. Amongst the 4 flexible bond funds, the JPM Income Fund delivered the strongest Q2 performance of 0.6%. The portfolio’s allocation to emerging markets bonds and Asian bonds also contributed to its relative outperformance. 

The Higher Income Portfolio posted a positive 0.5% return in Q2 2024, outperforming the 20-80 benchmark. The fixed income segment of the portfolio contributed to the outperformance with all of its building blocks in the positive territory. However, this was partially offset by underperformance on the equity side, which is tilted to small cap, value and high dividend stocks, all of which underperformed in Q2. In developed markets, gain in the equity markets in Q2 was again led by large cap, high quality, momentum and growth stocks. 

The Future Income Portfolio delivered a robust 1.5% return in Q2 2024, outperforming the 40-60 benchmark. Both the fixed income and equity components contributed to the relative outperformance. The fixed income component mirrors the Stable Income Portfolio. Its equity component slightly outperformed the MSCI ACWI Index. As Asian equity markets staged a strong recovery in Q2, boosted by Chinese equities and artificial-intelligence-exposed Taiwanese equities, the portfolio’s allocation to FSSA Dividend Advantage Fund helped. In addition, its tilt towards quality growth stocks via GMO Quality Investments Funds contributed.

All three Income Portfolios are achieving their payout targets.

• Actual payouts have remained stable despite the fluctuation of prices across the three portfolios. Volatility in price returns will result in mark-to-market changes (decrease or increase) in the portfolio value, but will not impact the actual coupon payments or dividend payouts from the underlying funds. 
• Yields in the fixed income market have risen meaningfully following the increase in global interest rates, creating a higher yield environment for income-seeking investors. 
• The changing interest rate environment has resulted in a divergence between the respective payout yields of Stable Income and Higher Income. This divergence is a reflection of the enhanced ability of investment grade flexible income funds to generate income in the current environment of elevated interest rates, compared to high yield and equity funds. These dynamics were pivotal in the Recommended Portfolio Change in November 2023, where we improved the credit quality of all three portfolios while maintaining the target payout levels. As we continue to monitor these evolving market conditions, it's crucial to acknowledge that the Higher Income Portfolio is strategically crafted to yield a higher total return than the Stable Income Portfolio over the long term.

Endowus Cash Smart Portfolios

Key performance highlights: The Cash Smart Portfolios maintained stable, positive returns in Q2 2024.

Cash Smart Secure delivered a 0.95% return in the second quarter of 2024, continuing its track record of stable performance. Over the past year, this portfolio had 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 0.96% in the second quarter of 2024. There was a slight pullback in April, primarily due to the UOB United SGD fund, which has a slightly longer duration than the other two underlying cash funds. The fund experienced some weakness amid widespread pessimism in global markets driven by fears of delayed monetary policy easing. However, the United SGD fund rebounded strongly in May and June as investor sentiment improved, significantly contributing to the overall portfolio returns in Q2.

Cash Smart Ultra achieved a 0.92% return in the second quarter of 2024. Funds such as the 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 Q2 performance and market insights at this link.

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