CY2020 Review of Phillip SING Income ETF
Singapore equities suffered its worst slump in 2020 since its independence, hammered by the pandemic-induced recession. Advanced estimates from the Ministry of Trade and Industry (“MTI”) revealed that the Singapore economy contracted 5.8% in 2020, albeit being slightly better than the official contraction forecast of 6-6.5%.
Along with consensus earnings being slashed, the local bourse also ended the year being one of the region’s worst performers. For CY2020, the Straits Times Index (“STI”) posted a Net Total Return (“NTR”) of -8.1%.
CY2020: Capitalisation-weighted Nikko AM Singapore STI ETF posted an NTR of -8.4% while SPDR STI ETF posted a performance of -8.1%. Meanwhile, our Phillip SING Income ETF (“the Fund”) – that utilizes the quality income strategy – posted a better performance of -6.74% for the comparable period. The Fund ended the year with asset-under-management (“AUM”) growing 20.4% to $59.4 million, driven by net positive inflows of $13.4 million.
On a gross total return (“GTR”)-basis, the Fund returned -6.0%. By the Global Industry Classification Standard (“GICS”), the Fund’s IT allocation (-39.8%) were the worst performers, followed by the Communication Services (-20.4%), Health Care (-15.2%), Industrials (-14.8%), Consumer Discretionary (-6.5%) and Financials (-1.4%). Consumer Staples (28.9%) were the best performers, while Utilities (4.0%) and Materials (2.0%) eked out minute gains. Portfolio-attribution wise, by the ‘Contribution-to-Return’ metric, Industrials (-3.1%) and Communication Services (-2.8%) were the major overhangs that weighed on the Fund in 2020.
Outlook in 2021
Generally, we are cautiously optimistic about the Singapore equity market in 2021. The early stringent containment measures implemented by the Singapore Government, though a tough pill to swallow, had turned out to be a strategic success in stamping out local infection rate. Coupled with the early adoption and rollout of the vaccine, along with the Phase 3 reopening that only began end-December last year, we should expect to see continued economic momentum domestically.
On the macro level, policies – both fiscal and monetary – are expected to remain supportive in order to sustain the economic recovery that is underway. Meanwhile, a concerted fiscal injection by governments around the world would also mean well for the region’s export-oriented economies like Singapore. Combine these favourable conditions with undemanding valuations and compelling dividend yields of Singapore equities in circumspect to the low-interest rate environment, valuations are likely to re-rate higher as the worst is put to rest. In our view, three major investment themes are likely to play out this year:
- Recovery of Global Demand – Commodities, energy, transportation, manufacturing
- Rotation to Quality/ Dividend Income – REITs, finance
- Re-rating – REITs, real estate, F&B, travel, entertainment
Looking into the horizon, the key risks relating to the pandemic remains to be a potential dampener and unsettle markets. For one, the pandemic is still raging on in other countries. As of 1 January 2020, the 7-day moving average was 594k new COVID-19 cases per day globally. Notwithstanding the confirmation of a more virulent strain, the true efficacy of the vaccines has yet been established when applied to a large population set.
There are also the production capacity and logistical challenges to bring approved vaccines en masse. As at the time of writing, only Pfizer-BioNTech and Moderna’s vaccines are approved for for full use in several countries while Sinopharm’s vaccine is approved for use in China. (see table 3). The 3 vaccine developers’ rolling combined annual production capacity of around 2.8 billion doses. As it is, approved vaccines only represent a potential immunization coverage of 1.4 billion or just 18% of the world population.
Changes in Portfolio Allocation
Chart 1: Phillip SING Income ETF – Portfolio Allocation
In the latest portfolio rebalancing, Phillip SING Income ETF saw the following rotations:
- Financials: 38.73% [-1.16%]
- REIT: 22.34% [-6.45%]
- Communication Services: 14.75% [+1.67%]
- Industrial: 8.84% [+1.67%]
- Consumer: 7.22% [+0.24%]
- Others: 7.30% [+5.28%]
- Cash: 0.82%
Specifically, the Fund saw rotations out from Financials and REIT allocations to that of Communication Services, Industrial and Others. Majority of the rotation went to “Others” [+5.28%] which mainly consists of the IT and Healthcare industry.
Meanwhile, the counters removed from the Fund were Far East Hospitality, GL, SATS and United Industrial Corporation. New additions to the Fund were AIMS APAC REIT, Great Eastern Holding, Prime US REIT, Raffles Medical Group and Venture Corporation.
Stronger Performance Delivered By Quality Dividend Income Strategy
In end-December 2020, Phillip SING Income ETF announced a cash dividend of $0.02 per share, bringing the total dividend declared in 2020 to $0.038 per share. Based on the closing NAV price per share of $1.005 on 05 January 2021, the Fund’s trailing 12-month (“TTM”) dividend yield is about 3.78%, lower than SPDR STI ETF’s 3.91% and Nikko AM STI ETF’s 4.12%. Despite that, the Fund’s higher NTR indicates that it held up better and saw lesser drawdown in 2020.
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