- Value stocks continued to underperform growth stocks in Q2, and that was a key performance detractor for the Endowus Flagship 100% Equity Portfolio.
- The Endowus Flagship 100% Fixed Income Portfolio’s delivered positive returns in the second quarter, besting the benchmark’s slightly negative return. In a reversal from Q1, Its larger allocations to corporate bonds and EM bonds both had a positive impact on performance.
- Both the Endowus Income Portfolios and Cash Smart Portfolios continued to deliver positive returns in the second quarter.
- For more on the market outlook, click here. To watch our webinar on Q2 performance and market insights, click here.
Endowus core portfolios — Q2 2023 performance comparison
Endowus Flagship Portfolios — Cash/SRS
Key performance highlights: The Flagship Cash/SRS Portfolios faced multiple challenges on many fronts in the second quarter of 2023. The 100% Equity Portfolio underperformed the MSCI All-Country World Index (ACWI) by about 0.9 percentage point. However, the 100% Fixed Income Portfolio bested the Bloomberg Global Aggregate Index by 0.6 percentage point.
In a continuation of what happened in the first quarter of 2023, value stocks significantly underperformed growth stocks in the second quarter. The 100% Equity Portfolio — with its value bias, small cap tilt, and slight overweight to emerging markets — underperformed its benchmark.
The 100% Fixed Income Portfolio outperformed the global fixed income market, helped by its larger allocations to corporate bonds and emerging-market bonds relative to the index. Emerging-market debt and corporate bonds outperformed US Treasuries in the second quarter. The PIMCO GIS Income Fund and the PIMCO GIS Emerging Markets Bond Fund were the best-performing funds in the line-up.
Endowus Flagship Portfolios — CPF
Key performance highlights: The Flagship CPF Portfolios posted positive returns for the second quarter of 2023. The 100% Equity Portfolio underperformed the broad global equity market by a slight margin, while the 100% Fixed Income portfolio eked out a 0.4% outperformance over the global fixed income market.
The 100% Equity Portfolio had a slight tilt to value due to its allocation in the First Sentier FSSA Dividend Advantage Fund, and that detracted from relative performance. The Equity Portfolio also tends to have a slight overweight to the emerging markets relative to the benchmark MSCI ACWI, and this had a negative impact as emerging markets underperformed developed markets.
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. This helped, as longer-dated bonds underperformed shorter-maturity bonds. The Eastspring Singapore Select Bond Fund, with its focus on the Singapore fixed-income market, was the best performer in the line-up.
Endowus ESG Portfolios
Key performance highlights: The ESG 100% Equity Portfolio delivered a positive return in Q2 2023, albeit lagging the MSCI ACWI slightly. The portfolio’s overall sector allocation contributed to its relative performance. As the energy sector had a sluggish performance in Q2, the portfolio's lack of exposure to energy helped its performance.
Additionally, the portfolio’s underweight position in the consumer staples sector, as well as its overweight position in the information technology (IT) sector, also contributed positively. The positive effect from sector allocation was offset by the negative effect from stock selection within certain sectors, such as industrials and consumer discretionary.
The ESG 100% Fixed Income Portfolio delivered a slightly negative return in the second quarter, in line with the benchmark Bloomberg Global Aggregate Index. The slight relative performance lag was mainly due to the portfolio’s overweight exposure to credit. However, the portfolio’s shorter duration positioning was able to mitigate the negative impact to an extent.
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. 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 Equity benchmark due to its overweight to emerging markets and its overall small-cap bias. The portfolio’s main allocation to the Dimensional Global Core Equity Fund was the primary driver of its relative underperformance. While the small-cap tilt and value tilt did not help its performance in the second quarter, it is worth noting that the Portfolio outperformed the more basic overall factor indices such as the MSCI World Enhanced Value Index and/or the MSCI World Equal Weighted Index.
The Factor 100% Fixed Income Portfolio performed in line with the fixed-income market benchmark, the Bloomberg Global Aggregate Index. The Dimensional Global Core Fixed Income Fund was the main detractor, as it underperformed the benchmark. The portfolio's underweight in emerging markets was compensated in part by its credit selection and short duration which provided some cushion.
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 underperformed the MSCI China All Shares Index during the second quarter of 2023. While the portfolio’s allocation to the JPMorgan China A-Share Opportunities Fund was a key detractor, healthy exposure to Greater China equities — via the Schroder ISF Greater China Fund and the First Sentier FSSA Regional China Fund — added resilience to the portfolio’s performance against bearish sentiment brewing onshore.
The China Fixed Income Portfolio registered positive returns over the first half of 2023. Within the portfolio, the BlackRock BGF China Bond Fund contributed strongly to performance, whereas the Neuberger Berman China Bond Fund detracted. It is also worth noting that the portfolio provides currency exposure to the Chinese yuan (CNY). Consequently, currency movements of SGD/CNY would impact performance as well.
Low Volatility Fixed Income Portfolio
Key performance highlights: The Low Volatility Fixed Income Portfolio outperformed both of its reference benchmarks during the second quarter. The shorter-duration allocations performed well and compensated for the underperformance of the main detractors — the UBSAM Asia Flexible Bond Fund and the PIMCO GIS Total Return Bond Fund — as yields rose and the Asia high-yield segment suffered.
Key performance highlights: The Megatrends Portfolio generated a positive return in the second quarter, as markets rallied on the back of enthusiasm over artificial intelligence (AI) and the moderation of inflation numbers in the US. However, the portfolio’s returns were lower than the MSCI All Country World Index, due to a lower exposure to the key mega-cap companies that benefited strongly from the attention on AI.
The BlackRock BGF Nutrition Fund was the main drag on performance, having posted a negative return for the quarter. It has been a tough first half of the year for the agriculture sector as a whole, with weak demand in the first quarter and an uncertain outlook for the rest of the year. All other funds in the portfolio had a positive quarter, with the AB Sustainable Global Thematic Portfolio Fund performing the most strongly.
Key performance highlights: The Technology Portfolio thrived during the AI-driven tech rally that dominated the first half of 2023, leading to outperformance over the broader market (MSCI ACWI), but slightly underperformed the MSCI ACWI Information Technology Index.
The underperformance relative to the MSCI ACWI Information Technology Index was due to the portfolio’s tilt towards smaller, non-US companies, as well as its larger allocation to non-momentum-driven names.
Nevertheless, the portfolio was able to participate in the recent rally through its underlying funds, such as the Franklin Technology Fund and the AllianzGI Global Artificial Intelligence Fund, which offer significant exposure to larger-cap technology companies and AI-related stocks.
Global Real Estate Portfolio
Key performance highlights: The Global Real Estate Portfolio performed in line with its reference indices, with the Janus Henderson Global Property Equities Fund and the BlackRock BSF Global Real Assets Securities Fund contributing strongly to performance. The portfolio’s modest exposure to utilities contributed to returns as well.
Endowus Income Portfolios
Key performance highlights: The Stable Income Portfolio outperformed the Bloomberg Global Aggregate Index in Q2 2023, delivering positive returns for the quarter. The biggest contributors included its allocation to emerging-market bonds, as well as good performance from the PIMCO GIS Income Fund, which is a multi-sector, flexibly managed fixed income fund.
The Higher Income Portfolio did not manage to keep up with the 20-80 Equity - Fixed Income Composite Index, although it still delivered positive returns. The fixed-income portion of the portfolio outperformed the Bloomberg Global Aggregate Index, as its allocation to emerging-market bonds and high-yield bonds aided relative performance. The equity portion of the portfolio underperformed MSCI All Country World Index (ACWI) as the portfolio’s overweight allocation to the higher-dividend and less growth-oriented segments of the equity markets — such as real estate and infrastructure — underperformed. Its allocation to emerging-market equities also weighed on relative performance.
The Future Income Portfolio delivered positive returns. However, similar to the Higher Income Portfolio, its tilt to higher dividend and value factors was a drag on relative performance for the equity portion of the portfolio. The fixed-income part of the portfolio performed strongly against the broad fixed-income market.
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.
- 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: In the second quarter of 2023, the Cash Smart Portfolios maintained their positive momentum, building upon a strong start in the first quarter.
Cash Smart Secure, with its ultra-short duration position, continued to capitalise on the prevailing high yield levels in the market.
Cash Smart Enhanced also generated positive returns, aided by its exposure to the Asian investment-grade and short-duration bond markets.
Cash Smart Ultra emerged as the top performer within the Cash Smart suite year-to-date (YTD), benefiting from the market's slightly risk-seeking stance in June, which allowed the portfolio to rebound from its low in May. Underlying funds such as the LionGlobal Short Duration Bond Fund and the PIMCO GIS Low Duration Income Fund, with their exposures to the Asian short-duration bond sector and the US securitised sector, were key contributors to the performance.
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