Balanced ETF portfolios SGD Q4 2020 commentary

SaxoSelect Commentaries
Saxo Markets

Asset classesStocks (developed and emerging equity), bonds, non-traditional
InstrumentsETFs
Investment styleMacro, diversified investment focus
Quarterly return (net of fees) 
Defensive0.4%
Moderate4.9%
Aggressive 
6.8%

Market overview

Global equities finished the year on a strong footing amidst positive vaccine news, and agreements regarding a Brexit deal and a pandemic relief plan in the US. Developed markets were up 3.5% in local currency terms and 4.3% in USD terms. Emerging markets gained 6.1% in local currency terms and 7.4% in USD terms. The USD ended the month down 2.1% as investors expect the Fed to keep interest rates low. Moreover, markets are optimistic regarding a recovery from the COVID-19 pandemic, which could make the greenback a laggard against other major currencies. 

Amidst rising COVID-19 cases in the US, the composite PMI for December (an indicator of economic health for manufacturing and service sectors) came in at 55.3, below November’s 58.6. The latest reading signaled the slowest upturn in business activity for three months due to a slowdown in new business growth. On the political front, US lawmakers finally agreed on a pandemic relief plan that will extend many of the CARES support measures such as renewing direct payments to households and generous unemployment benefits. EU governments found a compromise regarding the EU’s recovery fund and seven-year budget. This paves the way for a EUR 1.8 trillion financial support package if ratified by national parliaments of the 27 member states. Services remained the principal drag on economic output for the eurozone while manufacturing continued to expand over the month.

On the equity side, the emerging markets performed the best. Asia ex Japan was the key driver and supported by China’s economic rebound and we saw generally strong performance across the global emerging markets. We can generally say that countries with a good handle of the pandemic were rewarded. 

Within fixed income, 10-year government bond performance was muted in developed regions except for the US, UK and Italy. Hopes of economic recovery and an agreement regarding a stimulus deal led treasury yields to move modestly higher.  With more stringent lockdown measures imposed in the UK, gilt yields declined as economic uncertainty heightened for the nation. Benchmark 10-year yields climbed by 7bps to 0.91% in the US, while they declined 11bps in the UK to 0.2% and 1bp in Japan to 0.02%. Bund yields remained flat over the month at -0.58%. The oil rally triggered by positive vaccine news continued into December. The commodity (Brent) ended the month up 8.8% at $52/barrel. Growing worries about the new strain of the coronavirus have boosted the appeal of safe havens such as gold. Furthermore, the weak dollar bolstered the demand for the precious metal. Gold finished the year strong, returning 24.8% YTD and 7% over December, ending the month at $1898/ ounce.

 

Portfolio performance

Returns net of feesDefensiveModerateAggressive
Oct-1.0%-1.8%-2.1%
Nov1.3%5.1%6.5%
Dec0.1%1.7%2.4%
20206.41%7.41%7.49%
Since Inception (Jan 2017)12.8%19.6%28.8%

The multi asset portfolios produced positive returns in Q4 but suffered in October. 

Looking at October performance, all equity positions contributed negatively to performance. In absolute terms, allocations to US equity were most detrimental, giving up some of the gains made in the last months. This was followed by Japanese and UK equity. From a relative standpoint, the underweight to Europe and the UK paid off but the investment management team (the “team”) missed out on the positive performance in emerging market. 

On the fixed income side, absolute contribution was rather mixed and generally favored exposures with shorter duration. Allocations to interest rate hedged credit and mortgage backed securities contributed, and an overweight to the former one was supportive. However, treasuries suffered across the board with long-dated tickers giving up the most.

Portfolio Allocation and top portfolio holdings (as of 23 Nov 2020)

balanced-defensive-sgd

balanced-moderate-sgd

balanced-aggressive-sgd

Rebalance Commentary and Outlook

Following the US election results and the promising announcements about COVID vaccines, sentiment signals have broadly turned positive and the investment management team (the “team”) is more optimistic on equities over fixed income. Therefore, the equity allocation was increased and hence the active risk of the model portfolios. 

Within equities, the team continues its overweight in US equities which is driven by strong earnings growth forecast. The team increases allocation in emerging market equities because of decent earnings growth and improved valuation. The dollar depreciation will also be supportive for EM equities. The team is reducing the underweight to European equities. Although earning growth remains weak, valuation has improved significantly. The team believes that the impact from COVID will start to diminish in developed markets with expectations about vaccine availability at some point next year. Allocations to Japanese equities is reduced as valuation has deteriorated. The team is reducing the allocation to minimum volatility in the aggressive model to increase equity beta. 

Within fixed income, the model duration is cut by about 0.4 years as yields are expected to rise (which is negative for bond performance). With a steepening yield curve, the team is reducing the allocation in the longer duration US Treasury. The team also reduces the allocation to US investment grade as credit spreads revert to their pre-COVID level, making the current valuation expensive. Spread momentum continued to be positive for high yield, therefore, and the allocation is being kept. 

Within the alternative sleeve, the team is adding another 1% to REITS. REITS had underperformed YTD, but the positive announcements about COVID vaccines could be supportive for the recovery of the sector. The gold allocation is reduced by 1% to fund the equity overweight.

Disclaimer

SaxoSelect is offered and issued by Saxo Capital Markets Pte Ltd (“Saxo Markets”). Products or services offered by Saxo Markets or its affiliates or related entities are not sponsored, endorsed, sold, guaranteed or promoted by BlackRock (Singapore) Limited (“BSL”) or its affiliates or related entities (collectively, “BlackRock”) and BlackRock is not affiliated with Saxo Markets. BlackRock does not make any representation or warranty, express or implied, to the investors or any member of the public regarding the advisability or suitability of investing in any product or service offered by Saxo Markets, including SaxoSelect. BSL’s role is limited to the provision of model portfolios to Saxo Markets which are non-binding on Saxo Markets (for the avoidance of doubt Saxo has full discretion and responsibility for SaxoSelect and may make investment decisions that are independent of and differ from the model portfolios). BlackRock (i) is not an investment advisor or fiduciary to any client or potential client of Saxo Markets, or investor in SaxoSelect and (ii) is not responsible for determining the suitability or appropriateness of the model portfolios for any clients or potential clients of Saxo Markets, or investor in SaxoSelect and (iii) will not be liable to any client or potential client of Saxo Markets for any losses, damages, costs or expenses associated with the model portfolios provided to Saxo Markets. BlackRock does not place trade orders for Saxo Markets or any product or service offered by Saxo Markets, including SaxoSelect. BlackRock does not guarantee the performance of any of its funds or products. iShares® and BlackRock® are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other trademarks, service marks or registered trademarks are the property of their respective owners.

This material is provided for marketing and/or information purposes only. Fee charges mentioned herein are subject to change – you may find the latest updated pricing information on the description page for the respective portfolios. None of the information contained herein constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy. Saxo Capital Markets does not take into account your personal investment objectives, specific investment goals, specific needs or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and commentaries are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Saxo Capital Markets. Any expression of opinion (which may be subject to change without notice) is personal to the author and the author makes no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied. Although every endeavour has been made to ensure that our trading platforms are secure and reliable, please note that as with all facilities and systems, our trading platforms may be vulnerable to temporary disruption or failure. If you undertake transactions on an electronic trading system, you will be exposed to risks associated with systemic failure, i.e. failure of hardware and software.  

See the full Managed Portfolio Disclaimer for more information. Please also consider our Risk Warning and General Business Terms before trading with us.

Saxo Markets
Most of our staff in Singapore are working from home to help limit the spread of the coronavirus. We remain at your service on the details below. Thank you for your understanding.

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.