AutoInvest Monthly Update – December 2020

December capped off the dramatic year of 2020 where most markets went on a roller coaster ride witnessing uneven declines and gains as investor sentiment varied with every passing month. Global markets posted a gain in December to close out 2020 as COVID-19 vaccine rollouts prevailed over increased virus spread and new lockdowns. Nonetheless, consumer sentiment remains low with most countries anticipating a pullback in consumer spending in the near future; and while central banks’ stimulus globally played its part in the recovery of equity markets from the large dips of Q1 2020, the same actions are expected to keep interest rates low for the foreseeable future.

More closer to home, the first data release of the new year was Singapore’s GDP for the 4th quarter which showed GDP shrinking by 3.8% compared to 4Q 2019. However, the decline rate has improved from the previous quarters of 2020, bringing the overall GDP decline for the full year to 5.8%. Although Singapore’s economic growth is expected to rebound in 2021 by 4 to 6%, primarily helped by a low 2020 base, recovery is expected to be gradual with the GDP not expected to reach pre-Covid level until the later half of 2021.

How has the AutoInvest portfolio and its constituents performed during 2020?

GrabInvest’s mission is to democratize investment solutions by building suitable and accessible products for everyone. With AutoInvest, the aim is to address some of the most basic concerns which come with taking the first step of building investing habits by starting small, even as low as $1.

Since its inception the AutoInvest portfolio has achieved a total return of 0.96% net of fees for investors which equates to an annualised return of 1.91%.

Development of SGD 100 invested into AutoInvest at the end of June 2020 until end of December 2020

The AutoInvest portfolio holds the investments in four different funds.

●  Two money market funds (target allocation 53%) – The Fullerton SGD Cash Fund managed by Fullerton Fund Management, and the United SGD Money Market Fund managed by UOB Asset Management. The funds follow the guidelines for Money Market funds under the Code for Collective Investment Schemes as published by MAS, which include criteria high liquidity ratios and a limited set of instruments with very high credit quality. The target allocation and the returns of these 2 funds in 2020 are shown below:

Target allocation and returns:

Fund

Fund Manager

Target Allocation

2020 Return

Fullerton SGD Fund

Fullerton FM

28%

0.78%

United SGD Money Market Fund

UOB AM

25%

0.67%

Source: Bloomberg, returns are for the full year of 2020

Source: Bloomberg

●  The remaining two funds are short term interest funds (target allocation 47%) – The Fullerton Short Term Interest Rate Fund managed by Fullerton Fund Management, and the United SGD Fund managed by UOB Asset Management. These funds limit themselves to the short end of the interest rate spectrum, investing primarily in investment grade corporate securities whilst maintaining the typical average maturity of the portfolio below 3 years. This allows the short-term interest rate funds to provide better returns versus their money market counterparts, as they provide exposure to the slightly higher end of the risk spectrum in the low duration fixed-income asset class.

Target allocation and returns:

Fund

Fund Manager

Target Allocation

2020 Return

Short Term Interest Rate Fund

Fullerton FM

15%

3.23%

United SGD Fund

UOB AM

32%

3.05%

Source: Bloomberg, returns are for the full year of 2020

Source: Bloomberg

What is the outlook for the AutoInvest portfolio in 2021?

The pandemic lends to ongoing uncertainty for markets. On one hand, vaccinations have started providing a hope for a return to normal; but on the other hand, many countries are dealing with a rise in current cases and instituting strict lockdowns again. The balance between these scenarios coupled with the economies’ handling of the ongoing impact of the pandemic, and the low interest rate environment are going to be very important factors in 2021.

Central banks around the globe, including the Monetary Authority of Singapore, have provided strong monetary support for their respective economies. This extraordinary level of monetary easing has brought interest rates and yields much lower than they were just a year ago. The 3-month interbank deposits is currently at 0.3% p.a. compared to 1.6% p.a. last year. Similarly the yield on the 12-month MAS bills currently stands at 0.4% p.a. compared to last year’s 1.75% p.a. The MAS, in line with other central banks, is likely to maintain a policy that contains short term interest rates around these low levels.

So far, the underlying funds of the AutoInvest portfolio have been able to benefit from (a) the existing portfolio positions which still captured the higher yields from earlier in the year and (b) the wave of credit spread tightening which has been a consistent feature for the second half of 2020. We are now approaching levels of credit spreads in investment grade credit where substantial additional tightening is unrealistic. Both Fullerton Fund Management and UOB Asset Management will need to ‘replenish’ maturing securities in the funds with new assets which would yield according to the current prevailing low interest rate environment, thus impacting the returns of the underlying funds of the AutoInvest portfolio in 2021.

In line with the global interest rate environment, we are working on a downward revision of  the portfolio return expectations. 

1 As Source: Government of Singapore, Department of Statistics. https://www.singstat.gov.sg/

Q3 GDP was -5.6% compared to Q3 of the previous year;
Q2 GDP was -13.4% compared to Q2 of the previous year

The content in this article is meant for informational purposes only and should not be relied upon as financial advice. Past performance is not necessarily indicative of future performance.

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Komsan Chiyadis

GrabFood delivery-partner, Thailand

Komsan Chiyadis

GrabFood delivery-partner, Thailand

COVID-19 has dealt an unprecedented blow to the tourism industry, affecting the livelihoods of millions of workers. One of them was Komsan, an assistant chef in a luxury hotel based in the Srinakarin area.

As the number of tourists at the hotel plunged, he decided to sign up as a GrabFood delivery-partner to earn an alternative income. Soon after, the hotel ceased operations.

Komsan has viewed this change through an optimistic lens, calling it the perfect opportunity for him to embark on a fresh journey after his previous job. Aside from GrabFood deliveries, he now also picks up GrabExpress jobs. It can get tiring, having to shuttle between different locations, but Komsan finds it exciting. And mostly, he’s glad to get his income back on track.