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Phillip Capital Management – Abundance Of Liquidity To Create Opportunities In Tech Space Once Again
Phillip Capital Management (S) Ltd has recently published an article titled “Abundance Of Liquidity To Create Opportunities In Tech Space Once Again”.
The article seeks to answer some of these questions:
- Why is our Global Opportunities Fund taking on a risk-on view on global markets?
- What region to be overweight on, US or China?
- How does a global fund with a balanced mandate offer investors potential long-term upside while still maintaining a level of stability?
To find out more, please read the
full article.
Phillip Capital Management – Favourable S-REITs Yield Spreads Against 10-year SGS
Phillip Capital Management (S) Ltd has recently published an article titled “Favourable S-REITs Yield Spreads Against 10-year SGS”.
The article highlights some of the insights our fund managers gathered:
- As at the start of April, the market seems to have priced in an average 20% cut in DPUs for S-REITs (base case scenario)
- In our worst case scenario (from perspective of April), assuming a 50% cut in future DPUs, S-REITs as a whole would yield about 4.16%
- Compared to the 10-year SGS, yield spreads were 5.63% and 3.14% for base case and worst case respectively
- During GFC, yield spread between S-REITs and 10-year SGS was only 3.5%
To find out more, please read the
full article.
Allianz AGI Insights (April 2020): How to rethink US allocations during the coronavirus crisis?
Should I Invest In US Funds Amid COVID-19 Pandemic?
Should I Invest In US Funds Amid COVID-19 Pandemic?
Markets have been extremely volatile due to the coronavirus (COVID-19) situation and oil price war. Panic has seeped into the global stock markets and caused a market carnage. It is not just the volatility, but also the velocity of the market crash that caught us by surprise.
On 11 March 2020, S&P 500 fell more than 20% from its recent peak and took the shortest amount of time in history, a record of 16 days to go into bear market.
The market has since entered an extended period of panic, with S&P 500 recording the worst start to a quarter in history.
United States may still be able to turn the tide despite COVID-19. Pent-up demands could drive the economy recovery in the second half of the year. The COVID-19 pandemic has yet to peak, hence we may see more selling pressure before witnessing a US comeback. Recently, investment houses have been racing to cut their economic growth outlook as economic data are expected to reflect the massive negative impact due to COVID-19.
While there is still ongoing fear and anxiety, the pandemic shall eventually pass and consumption behaviour will return to some sort of normality just like it did after previous crisis such as 9/11.
Is the Market Correction over?
We are closely monitoring signs that possibly suggest the end of market corrections caused by COVID-19.
Table 1: Market Bottoming Signals
Key Bottoming Signals |
My View |
Peak in daily new cases and deaths |
Global daily new cases and deaths have not yet reached their peaks. |
Policy Response |
We may see more policy support as all industries have been affected by the COVID-19 pandemic. |
Market does not respond to bad economic data |
Economic data has yet to show the full impact of COVID-19 pandemic. |
Key Bottoming Signals
- Peak in daily new cases and deaths
Chart 2: Daily New Cases and Deaths of COVID-19
Source: Worldometer, 1 April 2020
Chart 3: Total Cases and Total Deaths from COVID-19
Source: Bloomberg Data, 1 April 2020
Daily new cases and deaths have not reached their peaks. Furthermore, global confirmed cases and death toll have both shown steepening curve.
In term of policy support, governments and central banks are trying to use monetary and fiscal policies to support the economy and let markets to bottom out. The US Federal Reserve has vowed to buy unlimited Treasury bonds and mortgage-backed securities. We may see more policy support as all industries have been affected by the COVID-19 pandemic.
- Market does not respond to bad economic data
US equity market may face selling pressure upon the release of more negative economic data. But if the stock market does not respond to worsening economic data and rebound instead, then this could be one of the bottoming signals as market may have priced in the impact of negative economic data.
Overall, we are not calling for the market bottom yet as there are still no clear signs of market bottoming based on various indicators.
However, it is unlikely that investors could perfectly time the market and buy at the exact market
bottom. Thus, we advocate dollar-cost averaging approach in this volatile market.
Dollar-cost averaging is a long-term strategy that allows you to make regular investments. For example, you have $1000 to invest, and you invest $100 every month instead of $1000 at one go.
This is an attractive strategy as it helps to "smooth” your purchases – lowers the average cost of investment – over time, and reduces the woes of entering the market at a “wrong” time.
With as little as S$100 a month, you can start a
Regular Savings Plan on POEMS to reduce the impact of volatility.
Keep Calm and Carry On
While we are still expecting bouts of volatility in the US market, we believe fortune favours those who are prepared. Investors should have a list of investment products worthy of long-term investment.
While we think the COVID-19 led sell off may not be done despite recent stock market plunge, we believe the market dips provide opportunities for you to get started with trading in the US equity market given the fair valuation. Investors could look to build a long-term portfolio through the dollar cost averaging approach.
Fair Valuation
While US equity’s valuation is considered relatively expensive when compared with Asian equity, the valuation premium is justifiable if investors consider the high growth potential in US companies and state of US economy.
Chart 4: Forward PE for S&P 500
Source: Bloomberg Data, 1 April 2020
Chart 5: Forward PB for S&P 500
Source: Bloomberg Data, 1 April 2020
The recent market weakness resulted in fair valuations for S&P 500. The S&P 500’s price-to-earnings (PE) ratio and price-to-book (PB) are both trading near their 10-year mean.
We are cautiously optimistic in longer term as we believe pent-up demands and resumption of economic activities should induce growth for the US economy in the second half of 2020.
However, a V-shaped recovery may be too optimistic as we have not seen the full magnitude of the coronavirus-led economic disruption.
Why should you invest in US mutual funds?
Unlike investing into individual stocks that are exposed to single counter and concentration risks, a mutual fund manager could invest into a basket of stocks to benefit from a diversified portfolio.
A mutual fund is actively managed by professional fund managers. During market volatility, a fund manager could actively switch in or out security selection to ensure the fund is well positioned to weather market volatility.
US Equity Mutual Funds
Investors may consider adding large cap mutual funds into their investment portfolio as large cap companies generally have sustainable profitability and healthier balance sheet to better weather tough times. We also favour mutual funds that focus on sustainable, multi-year growth trends as high quality, growth companies are well positioned for a recovery. Investors should prepare a list of quality US equity funds to position for long term.
How to get started?
With a wide variety of US equity funds on POEMS, you can select from more than 80 US equity funds across 17 fund providers based on your investment needs. You will also get to enjoy 0% platform fees, 0% sales charge and 0% switching fees for your Unit Trust investments on POEMS.
Visit our website at
https://www.poems.com.sg/fund-finder/ to explore your options!
Want to Learn More?
Get your insights at our upcoming Unit Trust Semi-Annual Webinar: Navigating the COVID-19 Panic on 30 May, 10 am. Join this informative session to get insights on what investors can do during the current trying market conditions.
Click here to register and find out more:
https://zoom.us/webinar/register/WN_tXvwY8UZSkms2ZHYiXfmJQThe Rise of ESG Investing
The Rise of ESG Investing
Investors used to make investments in companies based on financial performance. In the recent years, increasingly they look beyond profits and prefer investing in companies that align with their principles and values.
So… What Exactly is ESG?
ESG stands for Environmental, Social and Governance. The integration of ESG factors into investment policies, processes and practices helps measure the sustainability and ethicality of a company.
Environmental (E) includes climate risks and pollution.
Social (S) includes human capital issues and work place conditions.
Governance (G) includes business ethics and tax transparency.
Simply put, a socially responsible investor will decide to invest in a company based on ESG factors and steer clear of low ESG scoring companies. We believe that ESG factors will help investors assess the overall quality of a company and their financial performance in relation to the changing social and environmental issues.
Table 1: ESG Issues
Environmental |
Social |
Governance |
Climate change and carbon emissions |
Customer satisfaction |
Board composition |
Air and water pollution |
Data protection and privacy |
Audit committee structure |
Biodiversity |
Gender and diversity |
Bribery and corruption |
Deforestation |
Employee engagement |
Executive compensation |
Energy efficiency |
Community relations |
Lobbying |
Waste management |
Human rights |
Political contributions |
Water scarcity |
Labour standards |
Whistle-blower schemes |
Source: CFA Constitute, ESG Issues in Investing (2015)
Take for example, you may not consider investing in the tobacco industry because you have family or friends who developed illnesses due to smoking. In this scenario, you would probably want to invest your money in other industries.
Many investors realise that ESG investing helps to build a more sustainable future and mitigate some of the risks arising from climate change.
According to the 2015 Nielsen Global Corporate Sustainability Report, 66% of global consumers say they are willing to pay more for sustainable brands. How about Singapore? Well, a whopping 80% of Singaporeans stated that they are willing to pay a premium for products that contain environmentally friendly or sustainable materials.
Today, ESG is no longer just another fad, it has become mainstream and forms a core part of investment portfolios.
Creating Value with ESG Factors
“Can I invest responsibly and make money, too?”
In reality, many investors remain skeptical about ESG investing as they believe that it may result in loss of some returns. However, many studies have shown and recognised sustainable investing as a driver of long-term investment performance.
The MSCI ACWI ESG Leaders Index, MSCI Europe ESG Leaders and MSCI EM ESG Leaders, which provide exposure to companies with high ESG performance relative to their sector peers, generated better returns when compared with MSCI ACWI, MSCI Europe and MSCI EM for the period of Sep 2017 to Jan 2020. Thus, it is worth noting that integration of ESG factors into the investment portfolio may potentially enhance portfolio returns.
Chart 1: Cumulative Gross Returns (USD) of MSCI ACWI ESG Leaders and MSCI ACWI (Sep 2007 – Jan 2020)
Source: MSCI ACWI ESG Leaders Factsheet, 31 Jan 2020
Chart 2: Cumulative Gross Returns (USD) of MSCI Europe ESG Leaders and MSCI Europe (Sep 2007 – Jan 2020)
Source: MSCI Europe ESG Leaders Factsheet, 31 Jan 2020
Chart 3: Cumulative Gross Returns (USD) of MSCI EM ESG Leaders and MSCI EM (Sep 2007 – Jan 2020)
Source: MSCI EM ESG Leaders Factsheet, 31 Jan 2020
Strong Momentum Behind the ESG Investing Wave
We found that investors have been putting in more money in ESG funds last year.
According to independent research company Morningstar, ESG mutual funds and exchange-traded funds saw a net inflow of $20.6 billion in 2019, which is almost four times higher than 2018.
Chart 4: Sustainable Funds Estimated Annual Flows
Source: Morningstar Article, “Sustainable Fund Flows in 2019 Smash Previous Records”, 10 Jan 2020
An Aspirational Set of Investment Principles
The Principles for
Responsible Investing (PRI) is the world’s leading proponent of responsible investment. The UN-supported PRI is an international network of investors working together to put the
Six Principles into practice. By joining PRI, investors are committed to incorporate ESG factors into their investments and ownership decisions.
Today, PRI has a total of 2,372 signatories, with a total Asset Under Management (AUM) of USD 86 trillion. The largest asset owners at the PRI by AUM are based in Japan, France, Germany and Austria.
Chart 5: PRI’s Number of Signatories and AUM
Source: PRI Website, Data as of April 2019
Chart 6: AUM by Geography
Source: PRI Twitter, 28 Jan 2020
Beyond ESG
ESG factors not only help assess the competitiveness of a company, but also help investors avoid companies that engage in “irresponsible” activities. Investors mindful of these ESG factors may avoid investing in companies engaged environmentally unfriendly acts such as the BP’s oil spill disaster, Tokyo Electric Power Company’s Fukushima Daiichi nuclear disaster and Volkswagen's emissions scandal.
Becoming a Better Investor
ESG investing plays an integral role in portfolio construction, risk management and performance attribution. This is accompanied by an increase in interest in companies that care about climate change.
“If we could produce better portfolio returns while being socially responsible, why not?”
If you want to ride on the wave of sustainable investing, investing in mutual funds is one of the most cost-effective ways to build a diverse ESG portfolio as fund houses will help to screen responsible companies according to ESG considerations.
Explore ESG Funds on POEMS!
Currently, we have 15 ESG-themed mutual funds on POEMS for investors who are seeking sustainable investment solutions. So, do check out the links below:
Disclaimer:
These commentaries are provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.
Investments are subject to investment risks including the possible loss of the principal amount invested. Unit trusts distributed by Phillip Securities Pte Ltd (“PSPL”) are not obligations of, deposits in, or guaranteed by, PSPL or any of its affiliates.
The value of the units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in this publication are not necessarily indicative of future or likely performance of any unit trust. You should read the prospectus and product highlights sheet before deciding to subscribe for units in the respective fund. A copy of the prospectus can be obtained from the issuer or PSPL, or online at
https://unittrust.poems.com.sg/.
You may wish to obtain advice from a qualified financial adviser, pursuant to a separate engagement, before making a commitment to purchase any of the investment products mentioned herein. In the event that you choose not to obtain advice from a qualified financial adviser, you should assess and consider whether the investment product is suitable for you before proceeding to invest and we do not offer any advice in this regard unless mandated to do so by way of a separate engagement.
This editorial has not been reviewed by the Monetary Authority of Singapore.