Summary: After each quarter you can download your personal quarterly report into your SaxoWealthCare account. In this article we would like to further explain what has happened in the market and how we have responded to this within your profile and portfolio.
In the first quarter of 2024 the market embraced the possibility of a “soft landing” for the global economy whereby a prolonged recession is avoided. This sentiment took the stock market higher despite inflation remaining above central banks’ target ranges.
The dominant US economy showed strong annualized growth and employment remained high, supporting the demand for goods and services, to the benefit of the stock market.
Throughout the quarter “risk-on” assets continued to perform and many indices reached new highs. Japan’s Nikkei 225 surpassed its 1989 all-time high, whilst the US and European indices are also setting new highs. Of the large stock markets, only China posted negative returns for the quarter.
As per 2023, a year in which the MAGNIFICENT seven stocks (seven mainly large US tech stocks) where the dominant drivers of the stock market, 2024 returns have similarly been driven by a few top performers, now with even more tailwind from the ongoing artificial intelligence (AI) optimism.
Developed market equities continue to outperform emerging market equities even though the latter gave positive returns in the quarter.
In the bond market, a strong economy alongside upward pressure on inflation has reduced the anticipation for rate cuts from central banks, resulting in bond yields rising. Accordingly, government bonds incurred minor negative returns over the quarter. A strong economy also means that demand for oil and cyclical commodities remains high, supported by positive returns.
In the near-term the soft-landing scenario remains in the spotlight and risks remain to derail this positive scenario, with high interest rates on a high debt burden remaining a key consideration.
| 10Y Annualised Return | 10Y Annualised Volatility | Since Inception | Year to Date | Quarter to Date |
Very Dynamic | 10.27% | 11.44% | 17.33% | 8.91% | 8.91% |
Dynamic | 8.78% | 9.32% | 13.81% | 7.43% | 7.43% |
Moderate | 7.25% | 7.36% | 10.30% | 5.97% | 5.97% |
Defensive | 5.68% | 5.71% | 6.80% | 4.51% | 4.51% |
Very Defensive | 4.08% | 4.73% | 3.33% | 3.07% | 3.07% |
Source: Data from Bloomberg, Morningstar, BlackRock, Amundi, from 03/31/2014 to 03/29/2024. Inception date of the strategy is 5/31/2022. Returns are shown in SGD and gross of costs such as management fee and transaction costs but net of ETF costs (TER). Returns are calculated with a monthly rebalance to target allocation. Returns before the launch of the strategy with Saxo are calculated based on the portfolio allocation at the launch date. These historical returns do not attempt to simulate investment decisions that could have been made before the first portfolio was implemented with Saxo. The returns presented are indicative of the returns of individual investors, which may differ slightly.
All five risk profiles began 2024 with a positive return. Global equities surged by +10.4%, while global bonds saw a more modest increase of +2.0% in the first quarter. Both the equities and bonds components of our portfolios performed mostly in line with global markets, despite the ESG equities portfolio not fully capturing the overall market increase.
Over the first quarter of 2024, investors with more dynamic profiles experienced a significant asset growth, with returns of +8.9%, which, while slightly below global markets, still represents a noteworthy increase. More conservative investors continued to see their portfolios grow steadily, adding +3.1% so far in 2024.
Portfolio Protector and Goal-Based Strategies
Investors who have opted for Portfolio Protector or Goal-Based strategies have their own unique asset allocation that depends on their individual preferences and constraints. Still, the mix of assets in their portfolios will fall somewhere on the spectrum of the Fixed Mix portfolios since they are composed of the same building blocks for equity and bonds. Hence, we believe the information presented in this report should bring them some light to interpret the performance of their portfolios accordingly.
Equity
In the fourth quarter of 2023, the global ESG equity portfolio was rebalanced two times by BlackRock.
No changes were made to the allocation of the ESG equity portfolio over the first quarter of 2024.
This portfolio gives investors a broad exposure to sustainable equities. It aims to outperform global stock markets via dynamic tactical adjustments to the mix of ETFs in the portfolio. These adjustments are done via two investment models: country rotation and factor rotation. Country rotation is implemented through ETFs that track the general market of various countries and represents the biggest share of the portfolio. The rest of the portfolio is allocated to the factor rotation strategy which is implemented through ETFs that select stocks based on a set of attributes associated with higher risk-adjusted returns.
All the ETFs in this portfolio are selected according to ESG characteristics. They follow MSCI SRI indices which were designed to represent the performance of companies with high ESG ratings.
Bonds
The bonds portfolio was rebalanced one time over the first quarter of 2024.
This yield-seeking bond portfolio is composed of global government and corporate bonds with a medium duration. The foreign currency exposure is mostly hedged to the EUR in this portfolio. It is designed to invest for more stable returns than equities and to act as a diversifier when equities are down.
Early January
The recent decline in Emerging Market (EM) debt prices created a good opportunity to invest in this asset class. An allocation to EM debt was made in the portfolio, funded by a reduction in US debt. This adjustment kept duration stable while increasing and diversifying the portfolio’s credit risk exposure.
Several positive factors supported this adjustment, including the US Federal Reserve's potential change in direction as well as decreasing inflation, along with strong economic growth in emerging markets. All these formed expectations of a strong recovery in EM debt, making the depressed valuations and higher yields more attractive.
At the same time, various factors reduced the pressure on EM Central Banks' monetary policies, such as lower or stable US interest rates and a stable US dollar. This allowed central banks in emerging markets more flexibility to lower their own interest rates, potentially reducing the risk of a sharp global economic downturn (“hard landing”).
Overall, the technical conditions for investing in EM debt were very favourable at the time of the portfolio adjustment. With fewer EM debt securities available for trading in the past two years, the market had fewer investors, so even a small increase in investment flows could have a significant positive impact on returns.
These changes maintained the duration of the portfolio at around 6.9 years and increased the hedged yield from 3.27% to 3.35%. The Option-Adjusted Spread (OAS) also rose from 49 to 58, reflecting the increased credit risk from the investment in EM debt.
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Head of Commodity Strategy
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Chief Investment Strategist
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Head of Fixed Income Strategy
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