- Value stocks significantly underperformed growth stocks in Q1, as reflected in the performance of the Endowus Flagship 100% Equity Portfolio.
- The Endowus Flagship 100% Fixed Income Portfolio’s larger allocations to corporate bonds and EM bonds relative to the index detracted from relative performance, as investors turned to high-grade sovereign debt in Q1.
- The Endowus Income Portfolios and Cash Smart Portfolios delivered positive returns in the quarter.
- For more on the market outlook, refer to this article. To register for our webinar on Q1 performance and market insights, click here.
Endowus core portfolios — Q1 2023 performance comparison
Endowus Flagship Portfolios — Cash/SRS
Key performance highlights: The Flagship Cash/SRS Portfolios faced strong headwinds in the first quarter of 2023 — both the 100% Equity Portfolio and the 100% Fixed Income Portfolio underperformed the respective broad market indices.
In a reversal from the fourth quarter of 2022, value stocks significantly underperformed growth stocks in the first quarter of 2023. Because of this, the 100% Equity Portfolio had an uphill battle due to its large allocation to the value-focused Dimensional equity funds. The Amundi Prime USA Fund performed mostly in line with the US stock market. The portfolio’s small overweight in emerging markets also detracted as emerging markets underperformed developed markets.
The 100% Fixed Income Portfolio underperformed the global fixed income market, challenged by a difficult March for the underlying PIMCO and Dimensional fixed-income funds. The portfolio’s larger allocations to corporate bonds and emerging-market bonds relative to the index detracted from relative performance, as investors flocked to the safety of high-grade sovereign debt. The PIMCO GIS Income Fund was the portfolio’s worst-performing underlying fund during the quarter, hamstrung by factors such as its shorter duration (3.1 years), as bonds with longer durations (and tenors) rallied in the face of slightly lower interest rates.
Endowus Flagship Portfolios — CPF
Key performance highlights: The Flagship CPF Portfolios posted positive returns for the first quarter of 2023, but both the 100% Equity Portfolio and the 100% Fixed Income Portfolio underperformed their respective benchmarks as they faced similar headwinds as the Flagship Cash/SRS Portfolios did.
The 100% Equity Portfolio had a slight tilt to value due to its allocation in the FSSA Dividend Advantage Fund, and Q1 2023 was, unfortunately, unfavourable to value stocks. The Equity Portfolio also tends to have a slight overweight to the emerging markets relative to the benchmark MSCI All Country World Index (ACWI), and this proved challenging as emerging markets underperformed. In terms of the underlying funds, the LGI Infinity index funds were the best performers, largely posting returns similar to the major equity markets. The largest detractor was the FSSA Dividend Advantage Fund, followed by the Schroder Global Emerging Markets Opportunities Fund.
Meanwhile, the 100% Fixed Income Portfolio tends to have a shorter duration relative to the benchmark Bloomberg Global Aggregate Index. This is because a third of the portfolio’s assets are allocated to the UOBAM United SGD Fund, which is more conservatively positioned and shorter-duration — that is, less sensitive to interest-rate movements. While this helped in much of 2022, the shorter-duration positioning detracted in Q1 2023 as longer-duration bonds did better with the lower interest rates. The Eastspring Singapore Select Bond Fund and the UOBAM United SGD Fund are also focused on the Singapore fixed-income market, which lagged the global fixed-income markets in the first quarter. The Franklin Templeton Legg Mason Western Asset Global Bond Trust Fund was the portfolio’s best-performing fund during the quarter.
Endowus ESG Portfolios
Key performance highlights: The ESG 100% Equity Portfolio rode the global equity market rally, and performed in line with the MSCI ACWI benchmark during the first quarter of 2023. The portfolio’s zero exposure to the energy sector was one of the biggest contributors to relative performance as the energy sector reversed its gain in 2022 and performed poorly in Q1 2023. Offsetting this was the portfolio’s security selection, in particular in the financial sector. As a result, the ESG 100% Equity Portfolio performed in line with the benchmark overall.
The ESG 100% Fixed Income Portfolio delivered net positive returns on an absolute basis. On a relative basis, it lagged the benchmark Bloomberg Global Aggregate Index. However, this came after a strong showing in the fourth quarter of 2022, when the portfolio had outperformed the benchmark by 3%. Security selection in the underlying funds detracted from relative performance. In addition, while the portfolio had been extending its duration as fund managers saw more reward in taking duration risk, its overall duration was still shorter than the benchmark’s. As the markets rewarded longer-duration bonds amid slightly lower interest rates, the portfolio’s shorter duration had a negative impact on its relative performance.
The companies in the Endowus ESG Portfolios continue to demonstrate how businesses can also be responsible stewards and deliver positive societal and environmental impact. Endowus is actively reviewing environmental, social, and governance (ESG) data as these metrics become more available and reliable.
For example, we find that the ESG 100% Equity Portfolio aligns better with the United Nations Sustainable Development Goals (UN SDGs) as compared to the MSCI ACWI Index. The companies in the portfolio have, on average, lower greenhouse gas emissions and a better board gender diversity profile.
As for the ESG 100% Fixed Income Portfolio, the PIMCO GIS Climate Bond Fund currently has about 60% allocation in green bonds, with the remainder in issuers that lead in mitigating both carbon emissions and broader environmental externalities. The UOBAM United Sustainable Credit Income Fund invests in companies that contribute to the UN SDGs, in particular SDGs 1, 8, 9, and 11 — no poverty; 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: The Factor 100% Equity Portfolio underperformed the benchmark MSCI All Country World Index (ACWI) in Q1 2023. The portfolio’s focus on small cap and value stocks detracted as large cap and growth stocks outperformed the rest. This comes after a tough year for growth stocks, which were pummelled in 2022. The portfolio’s overweight to emerging market (EM) equities relative to the index also hurt its performance, as the EM region underperformed developed markets. The Dimensional Emerging Markets Large Cap Core Equity Fund’s outperformance over the MSCI EM Index mitigated some of the negative impact, but it was not enough to offset the underperformance completely.
The Factor 100% Fixed Income Portfolio also underperformed the benchmark Bloomberg Global Aggregate Index in the first quarter, mostly due to its shorter duration and overweight to credit, relative to the index. While the portfolio’s shorter-duration position — from its allocations to the Dimensional Global Short-Term Investment Grade Fixed Income Fund and the Dimensional Global Short Fixed Income Fund — helped protect the portfolio in February, the shorter duration detracted overall during the first quarter as bonds rallied in the midst of lower interest rates.
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 China Equity Portfolio posted positive returns over the quarter, capturing the market rebound from the tail end of 2022 that continued into January before taking a breather in February — locking in three months of consecutive gains. Security selection in the China Equity Portfolio’s underlying funds and an overweight to the information technology sector contributed meaningfully to performance, while an underweight in the communication services sector detracted. Within the Greater China region, Taiwanese equities proved more resilient than the onshore stocks largely due to the positive sentiment in the technology sector. As a result, exposure to Taiwan via the portfolio’s underlying allocations to the First Sentier FSSA Regional China Fund and the Schroder ISF Greater China Fund helped cushion overall performance when the market turned.
As for the China Fixed Income Portfolio, it delivered positive returns in Q1 2023. The portfolio primarily has exposure to offshore USD Chinese credit and onshore RMB Chinese credit, as well as, to a smaller extent, Chinese government bonds and policy bank bonds. About 40% of the portfolio is exposed to SGD–RMB currency fluctuations. These exposures all had a positive impact on the portfolio’s performance during the quarter.
Low Volatility Fixed Income Portfolio
Key performance highlights: After capturing the strong market rebound in January 2023, the Low Volatility Fixed Income Portfolio delivered robust performance over the first quarter and in February benefited from its downside protection characteristics, relative to the indices. Its allocations to the Legg Mason Brandywine Global Income Optimiser Fund and the PIMCO GIS Total Return Fund contributed meaningfully, reflecting strong performance in January and compensating for the weaker performance of the shorter-duration funds.
When markets were down in February, the more conservative allocations to the Fullerton Short Term Interest Rate Fund and the LionGlobal SGD Enhanced Liquidity Fund delivered positive returns, which helped offset the weaker performance of the Legg Mason Brandywine Global Income Optimiser Fund.
Key performance highlights: The Megatrends Portfolio rode the Q1 rally in a meaningful way, posting a return of 5.4%. Its performance largely mirrored the markets, with the strong rally in January interrupted by February’s slight decline. Subsequently, March’s rebound allowed the quarter to end on a positive note.
The portfolio’s growth bias was a positive attribute against the quarter’s bullish backdrop, with half of the underlying funds generating stronger performance than the MSCI All Country World Index (ACWI) benchmark. However, the BlackRock BGF Nutrition Fund and the AllianceBernstein (AB) International Health Care Portfolio Fund dragged down overall returns due to differing reasons. In the BGF Nutrition Fund, one of the key positions performed poorly in the first quarter due to lower demand guidance. Meanwhile, the AB fund was negatively impacted by a weak first quarter for the healthcare sector, although it still managed to outperform the benchmark with a small positive return.
Key performance highlights: It was a positive quarter for the Technology Portfolio, which posted a return of 16.8% in the first three months of 2023. The largest monthly contribution came in January (11.6%), buoyed by market optimism from China's reopening and strong consumer confidence in major developed markets such as the US and Europe.
The portfolio’s underlying funds such as the Franklin Templeton Technology Fund and the BlackRock BGF World Technology Fund, which had a rather difficult 2022, were the major contributors to the portfolio performance in Q1 2023. Overall, all the underlying funds posted positive, double-digit returns during the period.
However, the portfolio underperformed the benchmark MSCI ACWI Technology Index due to the portfolio's relative underweight in tech-giant names (such as FAANG stocks) that went through a favourable rebound in March. As the Technology Portfolio is designed to capture names that are less represented (that is, non-US tech companies, or smaller-sized companies) relative to the index and the broad market, investors are again reminded to hold the portfolio in tandem with a broadly diversified investment portfolio.
Global Real Estate Portfolio
Key performance highlights: The Global Real Estate Portfolio posted positive returns in the first quarter of the year, outperforming the relevant benchmarks. Most of the positive performance in the quarter was driven by a strong rebound in January as optimism over the possible slowing of interest rate hikes drove rallies in the real estate investment trust (REIT) and real estate sectors.
However, in March, these sectors underperformed global equities on recession fears and uncertainty about the state of the commercial property market post the US bank closures. The BlackRock BSF Global Real Assets Securities Fund was the biggest contributor to performance for the quarter, as its exposure to infrastructure and utilities equities had a positive impact on the portfolio’s performance.
Endowus Income Portfolios
Key performance highlights: All three Endowus Income Portfolios delivered positive returns in March and in the first quarter of 2023.
The Stable Income Portfolio delivered positive returns in March and the first quarter of 2023, but lagged the Bloomberg Global Aggregate Index. The portfolio outperformed the Bloomberg benchmark in January and was flat against the benchmark in February. The bulk of its underperformance came from March, primarily due to the portfolio’s shorter duration as well as an overweight position to emerging markets.
The Higher Income Portfolio also delivered positive returns, but again lagged the blended 20-80 Equity-Fixed Income Composite Index. The majority of its underperformance came in March, similar to the Stable Income Portfolio. On the fixed income side, the Higher Income Portfolio’s shorter duration contributed negatively to relative performance. Its overweight positions in emerging markets and high yield also detracted from relative performance. On the equity side, the portfolio underperformed during the quarter because of its value tilt. After the value factor’s strong performance in 2022, the first quarter of 2023 saw a strong growth-value reversal, whereby growth outperformed value by a significant margin.
The Future Income Portfolio shared a similar story, with the majority of the underperformance registered in March. On the fixed income side, the portfolio’s shorter duration as well as its overweight to emerging markets and high yield contributed negatively to relative performance. On the equity side, its exposure to the value factor was the primary driver of underperformance.
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.
- As the chart below shows, the annualised payout yields for the portfolios have been rising as a function of stable monthly payouts and lower net asset values from late 2021 to around Oct 2022, and have been stable since markets rebounded in Q4 2022 and Q1 2023.
- Yields in the fixed income market have risen meaningfully following the increase in global interest rates. This should be a positive for income-seeking investors.
Endowus Cash Smart Portfolios
Key performance highlights: All three Cash Smart portfolios continued to post positive returns in the first quarter of 2023.
The Secure portfolio continued to generate positive, stable returns. Cash Smart Secure posted a monthly return of 0.20% on average, with the underlying Fullerton SGD Cash Fund and LionGlobal SGD Enhanced Liquidity Fund offering strong yields that reflect the current high interest rate environment.
The Enhanced portfolio generated positive returns in January, February, and March 2023. The underlying LionGlobal SGD Enhanced Liquidity Fund provided stable returns throughout the period, while the UOBAM United SGD Fund helped to capture higher returns as Asian bonds largely rallied with the optimism from China’s reopening.
The Ultra portfolio had an overall positive return for the quarter. Cash Smart Ultra saw strong returns in January, although it was subsequently impacted by the US Federal Reserve’s February and March rate hikes.
Read more: Endowus Q1 2023 Market Update and Outlook — Markets Rally: Is A Recession Priced In Already?
To register for our webinar on Q1 performance and market insights, click here.
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