Global Growth

Moving into 2024, the biggest questions remain whether the global economies can avoid a recession and if interest rates can be reduced in conjunction with more reasonable inflation rates. Europe has so far lagged the US in this regard. Whilst the mantra of central banks in 2023 was to contain inflation, with inflation at better levels the apparent mantra now is to be economically supportive and (attempt to) avoid a recession, also indicating a decline of interest rates. Some analysts expect the recent rally in stocks to continue as central banks continue their transition to being more economically supportive. More cautious analysts note geopolitical risks and that many stock valuations are expensive and stock prices could therefore be highly sensitive to any negative news.

Regarding bonds, the end-of-year consensus is that interest rates and bond yields could decline, to benefit bond investors so long as inflation remains on its downward trajectory. Many bond owners are now earning a much more attractive positive real yield[1] that they have not enjoyed since 2010, meaning investors are now receiving a healthy return than outperforms inflation to grow the purchasing power of their capital.

Portfolio Performance

Fixed Mix Strategies 

Source: Data from Bloomberg, Morningstar, BlackRock, Amundi, from 12/31/2013 to 12/31/2023. 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.

In the fourth quarter of 2023, both the equity and bonds portfolios delivered positive gains. Hence all five risk profiles ended 2023 with a positive return, recovering part of the negative returns incurred in 2022.

The full year returns range from +6.44% for the Very Defensive profile to +12.80% for the Very Dynamic profile. Equities outperformed bonds this year so more aggressive risk profiles with a higher allocation to equities ended 2023 on a more positive note than more defensive risk profiles.

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.

Portfolio Changes

Equity  

In the fourth quarter of 2023, the Asian bias equity portfolio was rebalanced three times by BlackRock.

This portfolio gives investors a broad exposure to equities with a focus on Asian 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 thematic investing. 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 thematic investing which is implemented through ETFs that select stocks based on megatrends, aka long-term changes that affect societies and economies in a transformational way.

Early October
The allocation to factors and Asian regional sleeves remained unchanged. Among broader regions, the allocation to regions with stronger fundamentals was increased. The weight of US equities in the portfolio was brought up, as decelerating inflation, a resilient economy and the AI-related boom have been supporting valuations. The weight of Japanese equities was brought up, as a diversifier in the portfolio with rising inflation being a likely tailwind in the region. In turn, the allocation to European equities was reduced.

Late October
Overall, the allocation was overweight South Korea and India, and remained underweight Taiwan (although the position grew) versus the benchmark index. The addition to South Korea was supported by positive valuation and momentum signals. Qualitatively, there was positive corporate guidance from the tech sector. India continued to demonstrate a resilient domestic economy with inflation falling back within central bank targets.

The allocation to China was kept underweight as indicated by the proprietary valuation and momentum-based signals. The allocation to EM consumer growth has been reduced as the China reopening theme had been losing steam.

Mid December
The focus remained on regions with strong fundamentals and economic resilience, guided by the proprietary earnings based systematic signal. The exposure to US equities was increased and the underweight to EM equities was decreased. In turn, the allocation to Europe and Japan was reduced. The outlook remains positive for Japan, but the allocation was slightly trimmed to balance the addition to EM and to manage the active risk in the portfolio. The Asian regional rotation sleeve was kept unchanged.

Within thematics, the allocation was brought up for themes with a high conviction guided by thematic sentiment and analyst estimates-based signals. Among the more tech-exposed themes, the allocation to Digital Security was increased, which indirectly benefits from the AI and Digital disruption theme, funded from Electric Vehicles and Driving and Automation and Robotics. Lastly, the allocation was trimmed for relatively lower beta themes such as Agribusiness and Ageing population.             

Bonds 

In the fourth quarter of 2023, the bonds portfolio was rebalanced one time by Amundi.

This is a yield-seeking bond portfolio. It is composed of global government and corporate bonds with a medium duration, but it also has a special focus on Asian investment grade corporate bonds. The foreign currency exposure is mostly hedged to USD in this portfolio. It is designed to invest for more stable returns than equities and to act as a diversifier to equities during negative periods, with a focus on the Asian region.

Late October
The changes took advantage of some of the volatility in rates and credit to increase the allocation to Euro Investment Grade bonds (“EUR IG”) and Global Aggregate bonds (“Global Agg”), with a reduction in the allocation to US Treasury duration. A large increase in the EUR IG allocation might have been too aggressive at this stage and might have resulted in excessive exposure to EUR duration so this was diversified by allocating to the Global Agg SRI ETF.

 
There were also changes in US duration with a decrease in US Treasury 7-10y in profit of US Treasury 20y+. This comes as the recent curve steepening looked overdone in the short term and Fed speakers were starting to push back against the move. These changes kept the portfolio duration around 6.5y and increased the hedged yield from 3.77% to 3.92%. The option-adjusted spread (OAS) also rose, reflecting the decision to take more credit risk in the portfolio.