Endowus Q3 2024 Performance Review

Endowus Flagship Portfolios — Cash/SRS

Key performance highlights: The Flagship Cash/SRS Equity Portfolio continued to deliver positive returns in the quarter while keeping pace with the broad global equity markets. The Flagship Cash/SRS Fixed Income Portfolio also generated positive returns but underperformed the broad fixed income markets by about 0.5%.

The 100% Equity Portfolio has structural tilts to value and small caps, via the Dimensional funds. These factor biases contributed to relative performance, as value stocks had a stellar quarter relative to growth stocks. Small caps also outperformed large caps, which benefited the Portfolio. The Dimensional Pacific Basin Small Companies Fund was the strongest fund in the equity line-up, with its focus on small caps driving excess returns over the broad benchmark.

The 100% Fixed Income Portfolio lagged the global fixed income markets during the quarter, mostly due to the cost of currency hedging. The fixed income funds in the portfolio are hedged to SGD and while the benchmark is hedged as well, hedging cost is not taken into account in the returns of the benchmark.

The weakest performer in the fixed income line-up was the PIMCO GIS Global Bond Fund. The Fund’s underweight exposure to US duration and select Asian countries, namely Thailand and Singapore, detracted from relative performance. 

Emerging markets debt was one of the better-performing sub-asset classes in fixed income. The outperformance of the PIMCO GIS Emerging Markets Bond Fund mitigated some of the negative impact from the abovementioned PIMCO Fund. 

Endowus Flagship Portfolios — CPF 

‍Note: The Flagship CPF Portfolio allocations were updated in July with three new funds from Dimensional. 

Key performance highlights: The Flagship CPF 100% Equity Portfolio posted positive returns in the third quarter of 2024 but lagged the broad global equity markets by a slight margin. The 100% Fixed Income Portfolio, had a strong quarter and almost kept pace with the broad fixed income markets.

The largest detractor from relative performance was the Schroder Global Emerging Market Opportunities Fund, even though emerging markets, as a market, had a fairly strong quarter. 

The Amundi Prime USA Fund was almost flat for the quarter as the US underperformed most of the other major markets and the foreign exchange component also detracted as the portfolio is denominated in SGD.

The 100% Fixed Income Portfolio performed almost in line with the broader fixed income market. The quarter’s strongest performing fund in the sleeve was the Eastspring Singapore Select Bond Fund while the United SGD Fund had a challenging quarter due to its short duration positioning.

Endowus ESG Portfolios 

‍Key performance highlights:  In August, we upgraded the ESG Portfolios to align more closely with the return and risk expectations of the broader markets. The new Portfolios boast a higher degree of manager diversification and lower investment costs, with improved balance in equity styles and geography, and enhanced credit quality in fixed income. 

Read more about the enhancements here.

The quarterly performance is thus a blend of performances before and after the proposed recommended portfolio changes. Our ESG Portfolios delivered positive performance, which reflects our commitment to integrating environmental, social, and governance principles while striving for competitive financial returns.

The Equity Portfolio registered positive performance, despite underperforming its benchmark by 0.2%. The underperformance was driven by the portfolio’s July performance before the recommended portfolio change. The Portfolio had a larger overweight to the growth factor, which underperformed in July. 

The performance in August and September was more in line with the broader market with some outperformance that narrowed the gap of the July underperformance. In particular, the two global equity funds, Mirova Global Sustainable Equity Fund and Nordea 1 - Global Stars Equity Fund outperformed the broader equity market meaningfully, contributing to the portfolio’s outperformance in August and September. 

The Fixed Income Portfolio outperformed the benchmark in the quarter by 0.2%. The negative impact from duration was more than offset by the positive contribution from credit as spreads continued to tighten. The recommended addition of Asian fixed income via the Eastspring Asia ESG Bond Fund contributed positively to relative performance as the Asian bond market delivered a strong performance in the second half of Q3. 

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, showcasing lower greenhouse gas emissions and enhanced board gender diversity compared to the global equities.

Our ESG 100% Fixed Income Portfolio also emphasises investments that contribute to environmental sustainability and social well-being. 

The PIMCO GIS Climate Bond Fund allocates over 75% to green bonds. The PIMCO GIS ESG Income Fund tilts towards companies or issuers with positive ESG characteristics, seeks a lower carbon footprint and actively engages issuers. The Allspring Climate Transition Global Investment Grade Credit Fund targets to decarbonise the Fund by 2050 and excludes securities exposed to ESG risks. 

Endowus Factor by Dimensional Portfolios

‍Key performance highlights: The Factor 100% Equity Portfolio outperformed its benchmark over the quarter while the Factor 100% Fixed Income underperformed the global fixed income markets.

All funds in the equity allocation contributed to the Portfolio's outperformance. The Emerging Markets Sustainability Core Equities Fund strongly contributed in September while the Global Core Equity Fund provided some downside protection in August.

The Fixed Income Portfolio underperformed the Bloomberg Global Aggregate Index by more than 1%. While the Global Core Fixed Income Fund slightly outperformed the index, the shorter-duration funds did not participate as much in the market rally during the quarter, leading to a negative impact on 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 means potential short-term 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 registered positive returns over the quarter, benefitting from the rally in both the onshore and offshore markets. The rally was driven by the promising stimulus measures announced by the central bank. These measures, aimed at rejuvenating China’s ailing economy, resulted in euphoric stock markets, which registered its largest 5-day rally since 2008. 

The Endowus China Equity Portfolio’s performance was primarily driven by its allocation to financials, consumer discretionary and industrial sectors. The Portfolio’s allocation to real estate was additive as well, with the sector rebounding strongly on the back of governmental support. From a market perspective, positions in the A- and H-share markets benefited, whereas exposure to Greater China markets such as Taiwan dragged performance on a relative basis.

The Endowus China Fixed Income Portfolio delivered positive returns over the quarter, driven primarily by the Blackrock China Bond Fund. Exposure to the Chinese yuan and US dollar duration in the Portfolio benefited overall performance as rates on both currencies came down in the quarter.

In addition, the Portfolio’s offshore credit position gained too as the spread compressed. The positive performance was partially offset by exposure to CNY in the Portfolio, primarily via the Neuberger Berman China Bond Fund; CNY depreciated against SGD in Q3. 

Low Volatility Fixed Income Portfolio 

Key performance highlights: The Low Volatility Fixed Income Portfolio performed on the lower end of its reference benchmarks during this quarter. The longer-duration funds performed in line with expectations, however, the Dimensional and Lion Global funds dragged on performance because of their shorter-duration positioning. 

Megatrends Portfolio 

Key performance highlights: Weak US economic data and an interest rate hike by the Bank of Japan initially jolted equity markets. However, excitement over the start of the Fed’s rate cut cycle and the announcement of new stimulus in China led to equity markets finishing strongly. Over the quarter, the Singapore Dollar appreciated by more than 5% against the greenback, leading to lower returns for both the benchmarks and the Megatrends Portfolio.

The Megatrends Portfolio outperformed the benchmark in the quarter. With the exception of the Thematics AI and Robotics Fund, all of the underlying funds generated stronger performance relative to the benchmark. 

The Neuberger Berman Global Equity Megatrends Fund led the way (+8.2%) with good stock selection, extending its 2024 performance to over +20%. Key holdings such as Alibaba and Zeta Global, a marketing technology company in the US, rallied by more than an average of +50%, with the former buoyed by China’s stimulus measures and the latter by strong earnings and the rollout of AI initiatives. 

The softness in returns of the Thematics AI and Robotics Fund was mostly driven by a weak July. Top holding Nvidia slumped in July, amid a broader tech selloff that affected other tech holdings in the Fund as well.    

Technology Portfolio 

‍Key performance highlights: The Technology Portfolio achieved a minus 1.6% return in the third quarter, outperforming the broader tech market.

The third quarter was eventful for the tech sector, starting with a sell-off in July amid concerns over high AI-related capital expenditures by mega-cap companies, and scepticism about whether these investments would translate into meaningful earnings. 

Profit-taking also hit the Magnificent Seven stocks as cyclical and geopolitical risks triggered reality checks among investors. August saw a slight rebound as recession fears eased, though the mega-caps continued to underperform as their earnings reports fell short of investor expectations. This also prompted a market rotation into smaller, more reasonably valued names that had been previously overlooked. In September, the Fed rate cut fueled risk-on sentiment, lifting returns across the broader tech market.

The Technology Portfolio outperformed its benchmark for the quarter, despite a challenging start. In July, the Portfolio declined by 4.0% due to its exposure to AI-related names across both large and mid and small caps. However, it rebounded in August and September, posting returns of 0.9% and 1.6%, respectively, with contributions across its underlying funds. Some of the Portfolio’s gains were further boosted by funds hedged to SGD, which benefited from the currency’s strength.

Global Real Estate Portfolio

‍Key performance highlights: The Global Real Estate Portfolio exhibited strong performance during the quarter, achieving a gain of 10.6%, thereby outperforming its benchmark and the broader market indices. Notably, July was a particularly robust month, with the portfolio rising 5.3%, driven by favourable market expectations regarding a potential interest rate cut in September, which positively influenced the sector.

All underlying funds within the Portfolio reported positive returns for the quarter, with stock selection being a primary contributor. The Janus Henderson Horizon Global Property Equities Fund, which holds the largest allocation within the Portfolio, rose by 9.35% during the quarter. Additionally, the BlackRock BSF Global Real Assets Securities Fund outperformed its respective benchmark rising 11.43% over the same period.

Note: The Portfolio has been renamed as Real Assets Portfolio from 16 Oct. Existing clients can choose to accept the changes in the underlying funds. For more, refer to the article: Introducing Endowus Real Assets Portfolio

Endowus Income Portfolios 

‍Key performance highlights: The Stable Income Portfolio achieved a positive 3.9% return in the third quarter, slightly lagging the broader credit market. The Portfolio’s shorter duration relative to the benchmark was the primary reason for its underperformance, as longer-duration assets outperformed shorter-duration assets. 

The Higher Income Portfolio posted a positive 4.2% return, outperforming the 20-80 benchmark by 0.6%. The equity segment of the Portfolio contributed positively to its relative outperformance. Currency hedging against USD SGD volatility by most of the underlying equity funds successfully shielded the portfolio from USD depreciation against SGD in Q3 2024. 

In the Higher Income Portfolio, the equity segment’s overweight position in listed real estate and Asia contributed as the real estate sector rebounded on lower interest rate expectations, and Asian stocks rallied in the last week of Q3, ending the quarter outperforming global stocks on the announcement of the China stimulus package. On the other hand, the fixed income segment of the Portfolio lagged behind the broader credit market due to its shorter duration positioning. 

The Future Income Portfolio delivered a robust 3.2% return, outperforming the 40-60 benchmark. The fixed income component mirrors the Stable Income Portfolio and underperformed the credit market slightly. Its equity component on the other hand outperformed the broader equities market. 

Similar to the Higher Income Portfolio, currency hedging of some of the underlying equity funds as well as its overweight position to Asian stocks contributed to relative performance. Additionally, the Portfolio’s tilt to small cap and high dividend yield also contributed as both factors outperformed. 

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 delivered attractive, positive returns in Q3 2024.

As the rate environment normalises, we observe that the returns of the three Cash Smart Portfolios are aligning with their respective risk profiles. Cash Smart Secure generated the lowest returns, followed by Enhanced, and Ultra concluded the quarter with the highest returns.

Cash Smart Secure delivered a 0.3% return in the quarter, continuing its track record of stable performance. The returns of the underlying funds, Fullerton SGD Cash Fund and LionGlobal SGD Enhanced Liquidity Fund, have started to decline as rate levels decrease. Given this trend, it might be a good idea to consider moving your cash to the longer duration portfolios, such as Enhanced or Ultra, to generate extra returns, provided it aligns with your investment situation and objectives.

‍Cash Smart Enhanced reported a return of 1.3% in the quarter. All underlying funds contributed positively, with the United SGD Fund making a significant impact due to its slightly longer duration and higher credit allocation.

Cash Smart Ultra generated a return of 1.6% in Q3 2024. All underlying funds contributed positively, with longer duration and higher credit allocation funds such as the Fullerton Short Term Interest Rate Fund, LionGlobal Short Duration Bond Fund, and notably, the PIMCO GIS Low Duration Income Fund making notable contributions during the quarter.

Cash Smart Portfolios, primarily exposed to USD and SGD market rates, are seeing declining projected yields as markets enter a rate-cut cycle. Given the varying levels of duration and credit risk across the portfolios, investors are encouraged to review their investment goals and assess whether their current Cash Smart Portfolio remains aligned with their needs.

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