The overall performance of Singapore’s Central Provident Fund Investment Scheme (CPFIS)-included funds saw a slight decline, with returns dropping from 4.88% in Q1 2024 to 3.11% in Q2, according to a recent report.
Despite this dip, the CPFIS funds still delivered an average positive return of 9.69% over the one-year period ending June 2024, finds the quarterly report by Morningstar, which focuses on Singapore fund flows and the performance of unit trusts and investment-linked insurance products included under the city-state’s CPFIS as of June 30. The report also provided a market outlook for the second half of the year.
The performance of these funds has been influenced, the report notes, by the divergence between Asian and global markets, with Asian-focused funds playing a significant role.
Equity funds led the asset classes with a 4.10% return in Q2, although this was down from 6.40% in the previous quarter. Allocation and money market funds followed, posting returns of 2.48% and 0.90%, respectively. Fixed-income funds managed to reverse previous losses, recording a modest gain of 0.03%.
Over a one-year period, equity funds, the report points out, continued to outperform, with a gain of 11.91%, while all asset classes reported positive returns. However, over a three-year period, money market funds outshined others with a cumulative return of 7.12%, while bond funds were the weakest performers with a negative return of 6.00%.
In terms of fund flows, Singapore posted net inflows of S$1.8 billion (US1.38 billion) for the second quarter of 2024, marking an 88.9% increase from the first quarter's inflow of S$975.3 million (US$748.9 million).
Fixed income funds attracted the highest inflows at S$906.94 million (US$696.89 million), followed by money market funds at S$622.2 million, and equity funds at S$261.16 million, while commodities and alternatives registering inflows of S$5.75 million and S$4.12 million respectively. Convertibles saw the least interest among investors, with outflows of S$0.04 million.
Asian, global market divergence
“In reviewing the performance of CPFIS funds, it is worth noting that they cover a diverse range of categories with a relatively higher concentration of Asia-focused funds, reflecting investor demand,” says Arvind Subramanian, Morningstar senior analyst and manager research. “As a result, the significant performance divergence between Asian and global markets plays a part in influencing the average performance of CPFIS funds.
“Additionally, when compared against the likes of MSCI World which has delivered stronger returns, one should remember that it has an approximately 72% weighting in the United States. Nevertheless, the average performance of CPFIS funds over a one-year period has delivered approximately 10% returns.”
Looking ahead into the latter half of 2024, global markets, the report points out, face a mix of challenges and opportunities set against the ongoing geopolitical crisis in the Middle East and the Ukraine-Russia war.
In Asia, geopolitical tensions and China’s economic recovery, the report adds, will influence market sentiment with the US-China relationship expected to come into sharper focus, with the topic weighing heavily in the US election.
Should the tariffs conversation come back into play, some volatility is to be expected, but this could also bring new opportunities for investors, the report argues; and while the anticipated rate cuts by the US Federal Reserve could boost bond returns, the timing of that move remains uncertain.
