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In this week’s “Idea of the Week” segment, we offer insights on the Singapore government’s way of managing the country’s reserves, and 3 lessons that investors can learn from there.
Singapore's reserves are managed by three agencies, the Monetary Authority of Singapore (MAS), the Government of Singapore Investment Corporation (GIC) and by investment firm Temasek Holdings. During the fourth annual Sovereign Wealth Fund Conference held at the Singapore Management University, Mr Lim Boon Heng, chairman of Temasek Holdings, delivered an address that covered the role of the sovereign wealth fund (SWF), its investment mandate and its contribution to the economic and social security of Singapore. In this week's "Idea of the Week" segment, we offer insights on the Singapore government's way of managing the country's reserves, and 3 lessons that investors can learn from there.
1: MAS – CONSERVATISM HAS A ROLE
Singapore's central bank, the MAS, is the most conservative among the three agencies when it comes to managing Singapore's reserves with a large part of its portfolio invested in liquid financial market instruments presumably delivering a steady stream of low returns accompanied by low risk, that are easily converted into cash, akin to a 'parking facility' of sorts. The concept of a 'parking facility' allows investors to place and accumulate more capital whilst awaiting and searching for potential investment opportunities. Money market funds and instruments, with their high liquidity and fairly low risk of default fit this role particularly well. For investors who seek a slightly higher return accompanied by slightly higher risk, the short duration bond space offers a potentially more rewarding proposition for investors who can tolerate the higher risks involved.
On the platform, investors who seek such a 'parking facility' have several options to choose from, ranging from money market funds such as LionGlobal SGD Money Market and Phillip Money Market; to short duration bond funds such as the United SGD Fund Cl A Acc and the Nikko AM Shenton ShortTerm Bond(S$) (which is one of 3 designated parking facility funds) which come with slightly higher risks than a money market fund.
While not necessarily holding all their assets in such liquid financial instruments, such investments listed above have a place in an investor's portfolio; with the underlying instruments of such funds above typically providing sufficient liquidity should an event necessitate the call for emergency funds.
2: GIC - DIVERSIFICATION
The Government of Singapore Investment Corporation (GIC) is the second of the three agencies to manage the country's reserves. GIC is a fairly conservative fund manager that invests its assets across a wide spectrum of various asset classes, thereby essentially creating a diversified portfolio. As legendary investor Sir John Templeton advocates, "Diversify. In stocks and bonds, as in much else, there is safety in numbers." Investors would do well to have their investments diversified across asset classes such as fixed-income instruments and equities to create a more balanced portfolio.
In addition to diversifying across asset classes, investors should seek to diversify their holdings within the various segments and geographical regions of the said asset classes. For instance, investors should have some exposure to both developed market equities such as those from US, Europe and Japan; as well as some exposure to the Asia ex Japan region, given the faster economic growth in the latter that should see a faster rate of earnings growth that could propel equities in Asia higher. Taking the concept of diversification amongst equities a step further, investors who have sufficient risk appetite could consider gaining exposure to not only large cap equities, but to small cap equities that are typically more volatile and potentially more rewarding. Similarly for fixed income, investors should diversify their portfolio amongst both the riskier and safer segments of fixed income in a proportion that is commensurate with their risk appetite.
A well diversified and balanced portfolio is amongst one of the best means with which to capture global growth and ensuring any positive surprises (e.g. developed markets in 2013) and unwanted surprises (e.g. Global Emerging Market’s underperformance in 2013) does not leave an investor’s portfolio in tatters.
3: TEMASEK HOLDINGS - LONG TERM ACTIVE APPROACH TO INVESTING
Temasek Holdings, the renowned sovereign wealth fund of Singapore, is the third agency to manage Singapore's reserves and manage the country's assets. Temasek Holdings differs however, from their other counterparts like the MAS and GIC, when it comes to their investment mandate – primarily investing its assets into equities. Nonetheless, investors have several takeaways from the investment holdings firm.
For starters, the adoption of a long-term and active approach sees Temasek Holdings ignoring market “noise” that tends to be short term in nature. By taking a leaf out of Temasek Holding’s book and ignoring “noise”, investors can avoid making rash knee-jerk reactions that could be detrimental to their portfolios. For example, investors who had rashly decided that the US was no longer a sound investment proposition following the budget squabbling and Standard & Poors’ credit rating downgrade back in 2011 despite it not actually having a tangible impact on the underlying fundamentals of the US economy would’ve missed out on whopping gains that the US equity market has seen since. But, investors who had adopted a long term outlook whilst focused on the fundamentals with patience would’ve been rewarded handsomely.
Another key takeaway from Temasek Holdings’ investment approach is to adopt an active approach to investing. While an active approach to investing could be construed several ways, we believe that for investors, an active approach best encompasses two main efforts: regular market updates, and, rebalancing their portfolios. Regular updates are available on the Fundsupermart.com website, with weekly updates for both the equity and fixed income markets at large, while articles on the markets under coverage also provide investors with deeper insights and updates into a wide range of regional and single country markets to alert investors should there be a material change in the underlying fundamentals of a market under our coverage. As for rebalancing of one’s portfolio, the concept of rebalancing is one that should be not be alien to investors of Fundsupermart.com, given we have advocated investors look to rebalance their portfolios to ensure their exposure to the various equity markets and segments of fixed income do not deviate excessively from their targeted weights.
sources:
https://secure.fundsupermart.com/main/article/Idea-Week-Investment-Lessons-From-Singapore-Govt-8995
http://www.singaporebudget.gov.sg/budget_2014/AboutTheBudgetProcess.aspx
Singapore's reserves are managed by three agencies, the Monetary Authority of Singapore (MAS), the Government of Singapore Investment Corporation (GIC) and by investment firm Temasek Holdings. During the fourth annual Sovereign Wealth Fund Conference held at the Singapore Management University, Mr Lim Boon Heng, chairman of Temasek Holdings, delivered an address that covered the role of the sovereign wealth fund (SWF), its investment mandate and its contribution to the economic and social security of Singapore. In this week's "Idea of the Week" segment, we offer insights on the Singapore government's way of managing the country's reserves, and 3 lessons that investors can learn from there.
1: MAS – CONSERVATISM HAS A ROLE
Singapore's central bank, the MAS, is the most conservative among the three agencies when it comes to managing Singapore's reserves with a large part of its portfolio invested in liquid financial market instruments presumably delivering a steady stream of low returns accompanied by low risk, that are easily converted into cash, akin to a 'parking facility' of sorts. The concept of a 'parking facility' allows investors to place and accumulate more capital whilst awaiting and searching for potential investment opportunities. Money market funds and instruments, with their high liquidity and fairly low risk of default fit this role particularly well. For investors who seek a slightly higher return accompanied by slightly higher risk, the short duration bond space offers a potentially more rewarding proposition for investors who can tolerate the higher risks involved.
On the platform, investors who seek such a 'parking facility' have several options to choose from, ranging from money market funds such as LionGlobal SGD Money Market and Phillip Money Market; to short duration bond funds such as the United SGD Fund Cl A Acc and the Nikko AM Shenton ShortTerm Bond(S$) (which is one of 3 designated parking facility funds) which come with slightly higher risks than a money market fund.
While not necessarily holding all their assets in such liquid financial instruments, such investments listed above have a place in an investor's portfolio; with the underlying instruments of such funds above typically providing sufficient liquidity should an event necessitate the call for emergency funds.
2: GIC - DIVERSIFICATION
The Government of Singapore Investment Corporation (GIC) is the second of the three agencies to manage the country's reserves. GIC is a fairly conservative fund manager that invests its assets across a wide spectrum of various asset classes, thereby essentially creating a diversified portfolio. As legendary investor Sir John Templeton advocates, "Diversify. In stocks and bonds, as in much else, there is safety in numbers." Investors would do well to have their investments diversified across asset classes such as fixed-income instruments and equities to create a more balanced portfolio.
In addition to diversifying across asset classes, investors should seek to diversify their holdings within the various segments and geographical regions of the said asset classes. For instance, investors should have some exposure to both developed market equities such as those from US, Europe and Japan; as well as some exposure to the Asia ex Japan region, given the faster economic growth in the latter that should see a faster rate of earnings growth that could propel equities in Asia higher. Taking the concept of diversification amongst equities a step further, investors who have sufficient risk appetite could consider gaining exposure to not only large cap equities, but to small cap equities that are typically more volatile and potentially more rewarding. Similarly for fixed income, investors should diversify their portfolio amongst both the riskier and safer segments of fixed income in a proportion that is commensurate with their risk appetite.
A well diversified and balanced portfolio is amongst one of the best means with which to capture global growth and ensuring any positive surprises (e.g. developed markets in 2013) and unwanted surprises (e.g. Global Emerging Market’s underperformance in 2013) does not leave an investor’s portfolio in tatters.
3: TEMASEK HOLDINGS - LONG TERM ACTIVE APPROACH TO INVESTING
Temasek Holdings, the renowned sovereign wealth fund of Singapore, is the third agency to manage Singapore's reserves and manage the country's assets. Temasek Holdings differs however, from their other counterparts like the MAS and GIC, when it comes to their investment mandate – primarily investing its assets into equities. Nonetheless, investors have several takeaways from the investment holdings firm.
For starters, the adoption of a long-term and active approach sees Temasek Holdings ignoring market “noise” that tends to be short term in nature. By taking a leaf out of Temasek Holding’s book and ignoring “noise”, investors can avoid making rash knee-jerk reactions that could be detrimental to their portfolios. For example, investors who had rashly decided that the US was no longer a sound investment proposition following the budget squabbling and Standard & Poors’ credit rating downgrade back in 2011 despite it not actually having a tangible impact on the underlying fundamentals of the US economy would’ve missed out on whopping gains that the US equity market has seen since. But, investors who had adopted a long term outlook whilst focused on the fundamentals with patience would’ve been rewarded handsomely.
Another key takeaway from Temasek Holdings’ investment approach is to adopt an active approach to investing. While an active approach to investing could be construed several ways, we believe that for investors, an active approach best encompasses two main efforts: regular market updates, and, rebalancing their portfolios. Regular updates are available on the Fundsupermart.com website, with weekly updates for both the equity and fixed income markets at large, while articles on the markets under coverage also provide investors with deeper insights and updates into a wide range of regional and single country markets to alert investors should there be a material change in the underlying fundamentals of a market under our coverage. As for rebalancing of one’s portfolio, the concept of rebalancing is one that should be not be alien to investors of Fundsupermart.com, given we have advocated investors look to rebalance their portfolios to ensure their exposure to the various equity markets and segments of fixed income do not deviate excessively from their targeted weights.
sources:
https://secure.fundsupermart.com/main/article/Idea-Week-Investment-Lessons-From-Singapore-Govt-8995
http://www.singaporebudget.gov.sg/budget_2014/AboutTheBudgetProcess.aspx
