CPFIS funds hit by global market plunge

Uncertainty over the next US Federal Reserve interest rate hike, as well as the slowdown in China's economy, led global markets to plummet.
Uncertainty over the next US Federal Reserve interest rate hike, as well as the slowdown in China's economy, led global markets to plummet.PHOTO: REUTERS

Their overall performance slid by 6.4% in last quarter

Investors with money in funds under the Central Provident Fund Investment Scheme (CPFIS) did poorly again last quarter.

The funds kept bleeding as global markets plummeted owing to the Chinese stock market rout and uncertainty over the next United States Federal Reserve interest rate hike.

Researcher Lipper, which monitors the performance of all CPFIS funds, said the overall performance of the funds slid by 6.4 per cent from July to September.

Unit trusts in the scheme delivered a negative return of 7.1 per cent while investment-linked insurance products (ILPs) fell 5.9 per cent. Except for CPFIS-included bond and money market funds, which posted positive returns of 1.2 per cent and 0.2 per cent, funds in the other asset types in the equity and mixed-assets categories fell 8.9 per cent and 4.1 per cent.

The overall performance was consistent with the trend in the global markets. The MSCI AC Asia ex-Japan Index plunged 12.3 per cent, while the Citigroup World Government Bond Index soared 7.4 per cent for the quarter.


ST GRAPHICS

In Singapore, the Straits Times Index fell to a low of 2,740, down 23 per cent from the year's high.

For the 12-month period ended Sept 30, CPFIS-included funds posted a negative return of 0.5 per cent on average.

However, taking a longer horizon, the overall performance was better in the three-year period to Sept 30. CPFIS-included funds reported growth of 19.3 per cent on

average, accounted for by a gain of 22.4 per cent from unit trusts and 17.4 per cent from ILPs.

During the same period, the MSCI AC Asia ex-Japan Index soared 16.7 per cent and the Citigroup World Government Bond Index rose 6.3 per cent. Equity-type funds were the leading gainers with growth of 24.8 per cent, followed by the money market portfolio which posted about 1.2 per cent gains on average.

Mr Xav Feng, head of Asia-Pacific research for Thomson Reuters Lipper, said: "For the third quarter of 2015, the slowing of China's economy and uncertainty stemming from raising Federal Reserve interest rates resulted in dramatic corrections in global markets. In September, global markets started to regain momentum when the US Federal Reserve decided against raising US interest rates and to leave them at zero to 0.25 per cent, despite possible rate hikes in the fourth quarter."

Mr Christopher Tan, chief executive of financial advisory firm Providend, advised retail investors to take a longer-term investment view instead of making decisions based on the results of the last two quarters. "Markets go through cycles... Over the long run, the market generally rises so one should never look at the three-month and half-year performances of the market.

"If you have chosen a unit trust and believe in the fundamentals of the country or sector that it is invested in, then you should stay invested and not let short-term returns affect you," he said.

Looking ahead, Mr Feng said the divergent monetary policies of the US, China, Japan and the euro zone will continue to be the key influencing factors for global markets.

Under the CPFIS scheme, the CPF Board allows CPF members to invest their savings in bonds, stocks, unit trusts, exchange-traded funds, property funds and ILPs, while meeting the long-term objective of securing financial security in old age.

As of Sept 30, there were 282 CPF-approved funds - 105 unit trusts and 177 ILPs. These are expected to be well-diversified funds with low investment costs, good performance records and robust processes.

A version of this article appeared in the print edition of The Straits Times on November 27, 2015, with the headline 'CPFIS funds hit by global market plunge'. Print Edition | Subscribe