Save & Invest

Staying ahead by spreading out assets

Diversified portfolios able to reap gains despite poor showing of some stocks

Diversification was the key to last month's gains in the simulated portfolios of three retail investors we have been tracking under the Save & Invest Portfolio Series.

The series was introduced by The Sunday Times in January last year.

Today, we look at the February performance of three simulated portfolios. Our investors are: communications manager Shona Chee, 26, entrepreneur Getty Goh, 38, who is married with two children, and retiree Wang Moo Kee, 62. The Portfolio Series does not involve actual money as it is intended only for the purposes of illustration and education.

To keep them simple, accessible and easy to monitor, all three portfolios are limited to instruments listed on the Singapore Exchange and to Singapore Savings Bonds, which can be bought via ATMs.

There are similarities between the holdings, but the allocations differ depending on individual risk-return objectives and preferences. Each portfolio has a benchmark that best reflects its mix. For example, Mr Goh's is heavier on blue-chip shares, while bonds reflect Mr Wang's more conservative stance.

The simulated portfolios are constructed by CFA Society Singapore (CFAS) for an ideal investment horizon of five to 10 years.

PORTFOLIO PERFORMANCE

Ms Chee's portfolio saw returns rise 0.45 per cent for the month ended Feb 28, against 1.52 per cent for the benchmark, while Mr Goh's returns were up 1.34 per cent, against 1.71 per cent for the benchmark. For Mr Wang, returns grew 0.44 per cent, while the benchmark achieved 1.39 per cent.

The CFAS panel said the relative underperformance of all three portfolios was due to security selection in the Singapore allocation. The selected Singapore equities delivered a negative performance against a 1.81 per cent gain by the benchmark Straits Times Index (STI).

The reason is that four of the six stocks saw losses last month, with SingPost (-4.7 per cent) suffering the largest correction.

"February was a relatively stable month, with all three portfolios posting a gain. In the underlying mix, certain stocks dragged down the Singapore equity portion. But this was somewhat offset by the well-diversified nature of the portfolio, with United States and Indian equity markets bolstering returns," said the panel.

  • 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. 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 CFA Society Singapore (CFAS) and MoneySense, the national financial education programme.

    The CFAS panellists tracking the simulated portfolios are Mr Phoon Chiong Tuck, senior fixed income manager 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).

    Owing to readers' requests, you can now access past articles and monthly portfolio reports, by clicking on the Save & Invest Portfolio Series banner at www.sgx.com/academy

It noted the STI's positive showing was driven by a strong month for oil and gas, shipping and property counters - sectors to which the portfolios currently have no exposure.

"Corporate and perpetual bonds also corrected in the month, contributing to the underperformance of the bond allocation versus the predominantly Singapore Government bond index," said the panel.

"This, however, was partially offset by a strong month for the global exchange-traded fund (ETF) allocation, driven by US and India ETFs. The China ETF in Mr Goh's portfolio also had a strong month, which explains its relatively better performance."

Explaining why the benchmarks fared better, the panel said the chosen benchmarks that are available do not mirror the simulated portfolios exactly. The benchmarks are theoretical constructs and are not readily investible.

For example, most of the non-Singapore exposure in the portfolios has been obtained through ETFs, for which the chosen benchmark is an All Country Total Return ETF. This ETF includes Europe; yet, the portfolios have not been consistently invested in Europe. The benchmark does not include gold either, but the portfolios have maintained a position in gold for a long time.

With the portfolios fully invested and in the absence of any compelling factors, the panel decided not to make any allocation adjustments to the portfolios last month.

•The next seminar in the Save & Invest Portfolio Series, which will include a portfolio construction exercise, will be held on April 22 from 9.30am to 3pm at the NTUC Auditorium. To register, visit www.sgx.com/academy

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on March 12, 2017, with the headline 'Staying ahead by spreading out assets'. Print Edition | Subscribe