- The fourth quarter of 2022 offered respite for weary investors from the challenging market conditions. Both the equity and fixed-income markets enjoyed a rally and posted positive returns, amid hopes that rate hikes might slow down on the back of more favourable inflation figures.
- Commodities also ended the quarter on a positive note, albeit with mixed results within each sub-asset class.
- All Endowus core portfolios delivered strong relative performance, enjoying tailwinds from the value-style bias and the slight overweight to emerging-market equity and debt. The fixed income portfolios generally have significant allocations to corporate bonds, which outperformed sovereign and government debt.
- While their one-year performance was more of a mixed bag, we continue to view the Endowus core portfolios and their underlying funds as positioned to deliver value over the long term.
- For more on the market outlook, click here.
- To learn about how Endowus manages your portfolios amid market volatility, click here.
Endowus core portfolios — Q4 2022 performance comparison
Endowus Flagship Portfolios — Cash/SRS
Note: The Amundi Prime USA Fund and Amundi Index Global Agg 500m Fund were added to the Flagship Portfolios at the end of July 2022.
Key performance highlights: The Endowus Flagship Cash/SRS Portfolios displayed strong positive returns in the fourth quarter of 2022 — both the 100% Equity Portfolio and the 100% Fixed Income Portfolio outperformed the respective broad market indices. Aided by the upturn in the equity markets in the last quarter of the year, the 100% Equity Portfolio ended 2022 on a positive note, outperforming the broad equity market index by about 2%. The 100% Fixed Income Portfolio, in contrast, underperformed the broad fixed income market by 1.8%.
During the fourth quarter, value stocks outperformed growth stocks — a reversal from the third-quarter performance. The 100% Equity Portfolio, with its bias towards value, received a major boost in returns via its underlying Dimensional funds. The portfolio’s slight overweight in emerging markets was also a contributing factor, as emerging markets outperformed the rest of the world. Most of the underlying funds in the portfolio either outperformed or performed in line with their benchmarks.
For the full year, the majority of the 100% Equity Portfolio’s outperformance was driven by its value tilt as value stocks continued to enjoy a resurgence after more than a decade of underperformance. The MSCI All Country World Index (ACWI) gave up 18.9% in 2022 while the MSCI ACWI Value Index’s loss was more muted at 7.6%, outpacing the broad core index by more than 10%.
As for the 100% Fixed Income Portfolio, it outperformed the global fixed income market, represented by the Bloomberg Global Aggregate Index, during the fourth quarter The portfolio’s larger allocations to corporate bonds and emerging-market bonds had a positive impact, as corporates did better than government bonds in the fourth quarter. The Dimensional Global Core Fixed Income Fund tends to have an overweight to corporate bonds relative to the Bloomberg Global Aggregate Index. All the underlying funds in the portfolio had a strong quarter, outperforming that index.
For the whole of 2022, the 100% Fixed Income Portfolio underperformed the Bloomberg Global Aggregate Index. The major detractors were the PIMCO GIS Emerging Markets Bond Fund, followed by the Dimensional Global Core Fixed Income Fund.
Endowus Flagship Portfolios — CPF
Key performance highlights: The Endowus Flagship CPF Portfolios delivered positive returns in the final quarter of the year. The 100% Equity Portfolio outperformed the MSCI All Country World Index (ACWI) by about 0.2 percentage point, while the 100% Fixed Income Portfolio underperformed the Bloomberg Global Aggregate Index by 0.2 percentage point.
Their performance was reversed for calendar year 2022 — the 100% Equity Portfolio underperformed its benchmark slightly by about 0.3 percentage point, whereas the 100% Fixed Income Portfolio outperformed by almost 2 percentage points.
In the equity component of the Flagship CPF Portfolios, the best-performing underlying fund was the Schroder Global Emerging Markets Opportunities Fund, which invests in emerging markets (EM). During the fourth quarter, EM left the other regions in the dust as it powered ahead, with China leading the pack. The 100% Equity Portfolio tends to have a slight overweight to the emerging markets relative to the MSCI ACWI, and this provided tailwinds during Q4 2022.
Another major contributor to the equity component’s performance was the FSSA Dividend Advantage Fund, which focuses on more value-oriented companies. The FSSA fund returned more than 15% in November alone, and eventually finished the quarter with a return of more than 5%.
For the full calendar year, the primary detractor for the 100% Equity Portfolio was its slight overweight in EM, which lagged the other regions for most of 2022.
Meanwhile, the 100% Fixed Income Portfolio tends to have a shorter duration relative to the Bloomberg Global Aggregate Index. This is because a third of the portfolio’s assets are allocated to the UOB 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, it had a negative impact on the Q4 performance. The Franklin Templeton Legg Mason Western Asset Global Bond Trust Fund also detracted in the fourth quarter.
For the full year, the 100% Fixed Income Portfolio’s more conservative positioning and shorter duration added value and protected better, relative to its benchmark.
Endowus ESG Portfolios
Key performance highlights: The Endowus ESG 100% Equity Portfolio delivered outperformance against the MSCI All Country World Index (ACWI) in the fourth quarter, outpacing the index by about 4.8 percentage points. All three underlying funds in the portfolio generated excess returns over the index during the quarter. In particular, the Mirova Global Sustainable Equity Fund was the strongest performer, delivering more than 11% return in Q4, and reversing its underperformance from Q3.
Similarly, the ESG 100% Fixed Income Portfolio outperformed the Bloomberg Global Aggregate Index by about 3 percentage points in the fourth quarter. The portfolio’s credit exposure aided relative performance. Among its underlying funds, the strongest performer for the quarter was the UOBAM United Sustainable Credit Income Fund, with more than 5% return.
The companies in the Endowus ESG Portfolios continue to demonstrate how businesses can 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.
The ESG 100% Equity Portfolio generally aligns better with the United Nations Sustainable Development Goals (UN SDGs) than the MSCI ACWI does. Compared to the index, the companies in the portfolio have, on average, lower greenhouse gas emissions, better board gender diversity profiles, and lower water-withdrawal intensity across their value chains.
As for the ESG 100% Fixed Income Portfolio, the PIMCO GIS Climate Bond Fund currently has more than 60% allocation in green bonds, and the rest is allocated to 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.
Endowus Factor by Dimensional Portfolios
Key performance highlights: Both the Factor 100% Equity Portfolio and the Factor 100% Fixed Income Portfolio outpaced the broad equity and fixed income markets in the fourth quarter.
The 100% Equity Portfolio displayed strong relative performance against the MSCI All Country World Index (ACWI) in Q4. In contrast to Q3, the portfolio’s tilt to the value style and its slight overweight to emerging markets drove the majority of its outperformance versus the benchmark.
For the calendar year 2022, the 100% Equity Portfolio gave up 16%, while the MSCI All Country World Index (ACWI) retracted 18.9%.
In the Factor 100% Fixed Income Portfolio, two of the three underlying funds — the Dimensional Global Core Fixed Income Fund and the Dimensional Global Short-Term Investment Grade Fixed Income Fund — outperformed the broader fixed income market during the last quarter of 2022. This was additive to the overall portfolio’s performance.
The 100% Fixed Income Portfolio tends to have larger allocations to corporate bonds, which had a positive impact on performance. Although the portfolio’s shorter duration was helpful for most of the year, it was a detractor in the fourth quarter.
For the full year, the 100% Fixed Income Portfolio’s performance was more in line with the Bloomberg Global Aggregate Index, with a slight underperformance of about 0.6 percentage point. In 2022, the Dimensional Global Core Fixed Income Fund detracted from performance as it was the worst-performing fund in the line-up. Meanwhile the portfolio’s allocations to the two shorter-duration funds, which tend to be less sensitive to rising interest rates, aided relative performance and helped offset some of the underperformance.
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: China’s long-awaited reopening — and a rapid reversal at that — was embraced eagerly by global investors during the final months of 2022, sending both the equities and fixed income markets into a rally.
Boosted by China's reopening, the China Equity Portfolio posted a strong rebound of 13.8% in November after hitting its lows in October. It went on to post more modest returns in December, ending the quarter in the black and outpacing both the MSCI China All Shares Index and the MSCI China A Onshore Index. On a fund-level, the portfolio’s exposure to both the First Sentier FSSA Regional China Fund and the Schroder ISF Greater China Fund contributed to its performance. These two funds have sectoral overweight allocations to the industrial sector, which aided their performance.
The China Fixed Income Portfolio is showing signs of a rebound. Similar to its equities counterpart, the China Fixed Income Portfolio emerged from its lows in October to a small rebound in November and December. However, the outperformance was not enough to make up for the negative returns in October, and the China Fixed Income Portfolio retracted 1.4% during the fourth quarter.
Read more: Endowus Satellite Portfolios: On China equities — a 2022 update
Low Volatility Fixed Income Portfolio
Key performance highlights: The Low Volatility Fixed Income Portfolio rebounded in the fourth quarter, led by its allocations to longer-duration funds — the Franklin Templeton Legg Mason Brandywine Global Income Optimiser Fund, the PIMCO GIS Total Return Fund, and the UBS Asia Flexible Bond Fund. The funds benefited from the bond rally on the possibility that inflation had potentially peaked in the US.
For the whole of 2022, the portfolio performed as intended and delivered returns between that of the aggregate credit market and its shorter-duration version.
Key performance highlights: The Megatrends Portfolio finished the year strongly, with a positive quarterly performance that was almost double that of the MSCI All Country World Index (ACWI).
With its high equity beta and growth bias, the portfolio was able to capture significant upside in October and November, when markets turned bullish in anticipation of a more dovish stance by the US Federal Reserve. Encouragingly, when the markets retreated in December, the portfolio remained resilient, with a lower negative return.
While all of the portfolio’s underlying funds generated positive returns over the fourth quarter, the bulk of the portfolio’s returns came from the AllianzGI Thematica Fund and the BlackRock BGF Nutrition Fund. The Thematica Fund’s core themes displayed excellent performance in the quarter, as companies focusing on agriculture machinery, renewable resources, and healthcare generated significant returns. Similarly, the BGF Nutrition Fund benefited from the strong rebound in the agriculture machinery sector.
On a calendar-year basis, the Megatrends Portfolio underperformed its MSCI ACWI benchmark. While disappointing, this underperformance was not unexpected given the portfolio’s growth bias. However, the portfolio’s themes remain highly relevant and continue to have attractive long-term growth potential.
Key performance highlights: It was another volatile quarter for the Technology Portfolio as news headlines continued to dominate the markets. Persistent concerns over high inflation, tighter monetary policy, and slowing growth generally plagued the market, while the burgeoning hope of a slower pace of US rate hikes provided some short-term relief for technology stocks mid-quarter.
The Technology Portfolio underperformed the broader MSCI ACWI IT Index in Q4, after rebounding from its lows in October and posting slightly positive returns in November. However, December returns dragged down the gains from the previous two months, and the portfolio stayed in negative territory in Q4. The portfolio, in general, has greater exposure to growth and small-cap stocks, versus the index. Both of these factors detracted from performance in the fourth quarter and in the full year.
Read more: Endowus Satellite Portfolios: On technology — a 2022 update
Global Real Estate Portfolio
Key performance highlights: The Global Real Estate Portfolio posted positive returns in the fourth quarter, outperforming the relevant benchmarks. Most of the positive performance in the quarter was driven by a strong rebound in November, as optimism over the possible slowing of interest rate hikes drove rallies in the fixed income and equity markets.
The underlying funds performed in line with their respective benchmarks over the quarter. The BlackRock BSF Global Real Assets Securities Fund was the best performer, as its continued geographical overweight to Europe and sectoral exposure to the digital infrastructure industry contributed to performance.
However, in 2022, the Global Real Estate Portfolio underperformed all three indices. Global real estate as a sector had underperformed the broader markets over the year as rising yields and recession fears pushed prices lower. Overall, the portfolio underperformed the benchmarks for the full year due to a slightly higher growth tilt, with the major detractors being the Janus Henderson Global Property Equities Fund, followed by the BlackRock BSF Global Real Assets Securities Fund.
Read more: Endowus Satellite Portfolios: On global real estate — a 2022 update
Endowus Income Portfolios
Key performance highlights: All three Endowus Income Portfolios delivered positive total returns over the quarter and continued to meet their payout targets.
The Stable Income portfolio outperformed the Bloomberg Global Aggregate Index by a significant margin in the fourth quarter. All the underlying funds contributed to performance. The PIMCO GIS Income Fund and AllianceBernstein (AB) American Income Portfolio Fund were the top performers, as they actively allocate across fixed income sectors with a geographic focus on the US. The portfolio’s allocation to emerging-market debt and Asian bonds also helped, as both markets rebounded strongly during the quarter.
The Higher Income portfolio outpaced the 20-80 Equity-Fixed Income Composite Index in the fourth quarter. The funds in the equity sleeve of the portfolio registered strong performance during the quarter. Within the fixed income sleeve, the AB American Income Portfolio and AllianzGI Global High Yield Fund contributed the most to positive performance. The Higher Income portfolio’s allocation to emerging-market debt and Asian bonds also contributed favourably — both markets rallied hard in Q4 2022.
The Future Income portfolio delivered meaningful outperformance over the 40-60 Equity-Fixed Income Composite Index during the quarter. The funds in the equity sleeve of the portfolio generally displayed strong relative performance. The portfolio’s overweight allocation to Europe was one of the largest contributors as the European equity market outshone the rest of the world in the fourth quarter. Within the fixed income sleeve, the PIMCO GIS Income Fund was the biggest contributor, followed by the portfolio’s allocation to emerging-market debt, Asian bonds, and US high yield.
All three Income Portfolios are achieving their payout targets.
- Actual payout has remained stable despite the negative returns across the three portfolios. Negative price returns have resulted in a mark-to-market decline, but they do not impact the actual coupon payments or dividend payout from the underlying funds.
- As the first chart below shows, the actual payout from each Endowus Income Portfolio — assuming an initial investment of S$100,000 — has been stable on a monthly basis.
- As the second chart shows, the annualised payout yields for the portfolios have been rising as a result of a mark-to-market decline in portfolio prices and incremental increases in payout amounts. As a result, we are revising upwards the per annum (p.a.) payout targets for the three portfolios:
- Stable Income: now at 5% to 6%, up from 4% to 5% previously
- Higher Income: now at 5.5% to 6.5%, up from 5% to 6% previously
- Future Income: now at 3.5% to 4.5%, up from 3% to 4% previously
For more details on the higher payout targets and the outlook ahead for income investing, refer to this article.
Endowus Cash Smart Portfolios
Key performance highlights: All three Cash Smart Portfolios posted positive returns for the fourth quarter of 2022. Cash Smart Secure ended 2022 on a positive note, clocking 1.59% for the year, while Cash Smart Enhanced and Cash Smart Ultra had negative returns.
The Cash Smart Secure portfolio continues to generate positive, stable returns. The Secure solution locked in a gain of 0.25% for the month of December and generated a return of 0.65% for the quarter. The underlying funds — the Fullerton SGD Cash Fund and the LionGlobal SGD Enhanced Liquidity Fund — were able to offer some downside protection because of their shorter duration (which makes them less sensitive to interest rate changes). The portfolio ended the year with a gain of 1.6%, delivering its objective of positive returns with generally lower volatility.
Cash Smart Enhanced posted further gains in December. The Enhanced portfolio returned 0.32% in December, which is its second positive monthly gain for 2022. The stable returns from the LionGlobal SGD Enhanced Liquidity Fund were complemented by the favourable returns from the United SGD fund, which benefited from China’s rapid reopening, and improving sentiment in the Asian credit market. However, the positive gains from November and December were not enough to make up for the negative impact of the first 10 months of 2022, and the portfolio finished the year slightly in the red.
Cash Smart Ultra delivered another month of gains. The Ultra solution registered further gains in December, albeit to a smaller degree than in November. Returns were positive across all the underlying funds in the fourth quarter. The performance in 2022 was more disappointing than the quarter’s, as the portfolio gave up nearly 3% for the year.
Cash Smart projected yields have been on an upward trend with rising interest rates. As the Fed’s policy rate hike cycle pulls into a slower pace, the prices of underlying bond securities have appreciated — that is, the bonds are perceived as lower risk now, and more investors are willing to pay for them. This resulted in a slight decrease in the yields of the underlying funds and the Cash Smart portfolios in December 2022.
Regardless, the rising rate environment continues to provide an opportunity for the underlying funds to reinvest and allocate the coupon payments and cash from maturing bonds to higher-yielding bonds. The managers of the underlying funds will continue to take advantage of this environment as they reposition their funds for the next few months.
For details on the market outlook, refer to this article.
- Here are five big investing themes that may dominate 2023.
- For a wrap-up of 2022’s biggest market events, follow this link.
- Check out the most popular and selected new funds on Fund Smart in 2022.
- Find out how Endowus manages your portfolio in times of volatility in this explainer.
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