A study of three simulated portfolios shows that no single asset class performs consistently
Diversification has been the key to the robust performances of the simulated portfolios of three retail investors under the Save & Invest Portfolio Series introduced by The Sunday Times in January.
All three portfolios registered gains last month and beat their respective benchmarks.
In this, the 10th part of the series, we look at the performance of the portfolios, which went live on Jan 18 and are being tracked each month until next year.
The investors are 25-year-old Shona Chee, a communications manager, entrepreneur Getty Goh, 38, who is married with two young children, and retiree Wang Moo Kee, 61.
The Portfolio Series does not involve actual money as it is intended only for illustration and education.
All three portfolios are limited to instruments listed on the Singapore Exchange - to keep them simple, accessible and easy to monitor - and to Singapore Savings Bonds, which can be bought via ATMs.
While there are similarities in the three portfolio holdings, the allocation for each profile differs, depending on the individual's risk-return objectives and preferences. Each portfolio has a different benchmark that best reflects the portfolio mix. The simulated portfolios are constructed by CFA Society Singapore (CFAS) for an ideal investment horizon of five to 10 years.
Through the past eight months, the evidence shows that none of the four asset classes - domestic equities, real estate investment trusts (Reits), global exchange-traded funds (ETFs) and bonds - has consistently remained as an outperformer or underperformer.
In the January to February period, for example, equities and Reits were the outperformers, but in April, ETFs and bonds led the pack. In June, the outperformers were ETFs and Reits, but a month later, equities and bonds came up tops.
Last month, all four asset classes outperformed their respective benchmarks.
CFAS panellist Praveen Jagwani said the panel is wary of drawing conclusions on the basis of performances in short time periods.
However, even during the past eight months, there has been a significant lesson for investors - the importance of diversification.
Mr Jagwani says: "None of the four asset classes have consistently out/underperformed. Such is the fickle nature of markets, and thus, as investors, the best we can do is research and diversify while investing for the long term.
"Investment requires patience and a steady hand, reminiscent of the opening line of Rudyard Kipling's poem If, "If you can keep your head when all about you are losing theirs..."
He added that the panel has always highlighted the deficiencies of the existing benchmarks for accurate measurement of portfolio performance.
In a diversified portfolio, the benchmark is to be used merely as a rough guidepost.
Furthermore, none of the benchmark indices have any costs embedded, whereas the actual simulated portfolios have to incur trading costs.
All three portfolios registered gains in August. Ms Chee's portfolio was up 1.53 per cent for the month, beating the benchmark (0.37 per cent) by 1.16 percentage points.
Mr Goh's portfolio advanced 1.64 per cent, beating the benchmark (0.65 per cent) by 0.99 percentage point while Mr Wang's portfolio was up 0.9 per cent, beating the benchmark (0.22 per cent) by 0.68 percentage point.
All four asset classes outperformed their respective benchmarks in August.
The panel noted that most of the outperformance came from the ETF allocation, as the China, India and Asia ex-Japan ETFs all delivered strong returns. The rebound in the United States dollar also helped as all the ETFs are denominated in US dollars.
The Singapore equities' outperformance was again driven by logistics firm Sats as well as dividends by DBS Bank, Singapore Airlines and SingPost.
The Reits' outperformance was due to dividends from Ascendas Reit, while the better showing in the bond allocation was driven by the iShares JPM Asia Bond ETF, which was boosted by the impact from US dollar appreciation.
Last month, in the absence of any significant market factors, the panel decided not to make any changes to the portfolios, except for rebalancing Mr Wang's portfolio.
The panel decided to trim his holdings of the iShares JPM Asia Bond and switched into the ABF Singapore Bond ETF since the Asia bond holding had become greater than 10 per cent.
Additionally, it deployed the cash holding into gold.
For the other portfolios, the panel continued to hold cash since the transactional costs would outweigh the potential benefits.
•The fifth seminar in the Save & Invest Portfolio Series - SGX-CFA Portfolio Construction Conference for Retail Investors - will be held on Oct 1 from 9.30am to 3pm at the NTUC Auditorium. To register, visit www.sgx.com/academy.
Save & Invest Portfolio Series
The Save & Invest Portfolio Series features the simulated portfolios of a young working adult, a married couple with two young children, and a retiree over a 12-month period.
It guides retail investors in basic investment techniques and on how to build a portfolio in line with their financial goals and risk tolerance. This initiative involves the Singapore Exchange collaborating with the CFA Society (CFAS) Singapore and MoneySense, the national financial education programme.
The CFAS panellists tracking the portfolios are Mr Phoon Chiong Tuck, head of fixed income at Lion Global Investors, Mr Jack Wang, partner at Lexico Capital, Mr Praveen Jagwani, chief executive of UTI International, Singapore, and Mr Simon Ng, CEO of CCB International (Singapore).
Investment requires patience and a steady hand, reminiscent of the opening line of Rudyard Kipling's poem If, "If you can keep your head when all about you are losing theirs..."
'' CFAS PANELLIST PRAVEEN JAGWANI, on how investors can deal with the fickle nature of stock markets.
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