1H2021 Review of Phillip SING Income ETF
Compared to the start of the year, Singapore’s business activities have visibly returned to higher levels as the vaccination rate continues to climb by the day. As of 22 August 2021, 78% of the population have completed the full regimen with either two doses of the vaccine or one dose for recovered individuals, giving hopes for earlier and more comprehensive reopening. Reflecting an improving operating landscape, Singapore equities also saw some revitalization following its worst slump in 2020.
Along with upward revisions of consensus earnings expectations, the Straits Times Index also posted a strong rebound of 11.8% in the first half of 2021. On a broad basis, we have seen some of our predictions at the start of the year coming through reflationary trades owing to economic recovery and rotation to quality dividend income.
Table 1: Singapore Equities Performance
Source: Bloomberg; As of 30 June 2021
1H2021: Capitalisation-weighted Nikko AM Singapore STI ETF posted an NTR of 11.5% while SPDR STI ETF posted a performance of 11.6%, both underperformed the STI benchmark. Meanwhile, our Phillip SING Income ETF (“the Fund”) posted a return of 7.85% for the comparable period and also underperformed its benchmark, Morningstar® Singapore Yield Focus IndexSM, in part due to higher cash allocation in the portfolio. Nonetheless, our Fund saw asset-under-management (“AUM”) growing 14.4% to $65.8 million in 1H2021.
For context, unlike capitalisation-weighted STI ETFs (just rank constituents by market capitalisation), Phillip SING Income ETF utilizes the quality income strategy as its Index – Morningstar® Singapore Yield Focus IndexSM – employs a three-factor metric screen for business quality, financial health and trailing 12-month dividend yield.
Table 2: Attribution Summary (by GICS)
^Gross Total Return refers to the Total Return before deduction of fees & expenses and assumes any dividends being reinvested.
Source: Bloomberg; For the period: 31/12/2020-30/06/2021
On a gross total return (“GTR”)-basis, the Fund returned 8.95% (excluding cash). (). By the Global Industry Classification Standard (“GICS”), the performance of the Fund’s allocation by industry was mostly positive lest for Communication Services (-0.39%) and Consumer Discretionary (-0.64%). Healthcare allocations posted the best showing (29.93%) followed by Financials (19.39%).
In juxtaposition to capitalisation-weighted Nikko AM Singapore STI ETF and SPDR STI ETF, Phillip SING Income ETF underperformed due to 1) lower allocations to Financials (41% vs 45%) and 2) performance drag due to higher allocations to Communication services (14% vs 5%).
Outlook in 2H2021
Compared to the start of the year, we are more upbeat about the Singapore equity market in 2H2021, despite Singapore equities’ strong showing in the first half of the year. Reiterating our three major investment themes mentioned at the start of 2021, we have seen most of the themes already playing out (highlighted).
- Recovery of Global Demand – Commodities, energy, transportation, manufacturing
- Rotation to Quality/ Dividend Income – REITs, finance
- Re-rating – REITs, real estate, F&B, travel, entertainment
Despite the more virulent delta variant strain of the Covid-19 causing another bout of heightened measures that began in April 2021, vaccination rates are reaching a significant milestone of around 80%. Hospitalisation and ICU treatments for Covid-19 patients were shown to be significantly lower for those who had been partially or fully vaccinated. This is a clear vindication for the government’s vaccine programme as well as the efficacy of the vaccines.
Chart 1: Local Cases in the Last 28 Days by Vaccination Status and Severity of Condition
Source: Ministry of Health; as of 1 Aug 2021.
We are finally seeing the light at the end of the tunnel. Based on the trajectory of vaccination rates, we believe more than 80% of the population will have completed the full vaccination regimen by end of the year. With that in mind, we expect greater economic momentum for the rest of 2021, leading us to believe that re-rating plays will continue to pan out.
Particularly, we are of the view that S-REITs which had underperformed the broader market in the first half of 2021, will likely see renewed investors interest when the government eases measures and return to phase 3 reopening again on 19 August 2021. Furthermore, the Ministry of Health also recently declared Covid-19 an endemic, the likelihood for imposing strict measures again would ebb, along with the nation’s climbing vaccination rate.
Meanwhile, local listed companies are also beginning to lift salary freezes or cuts implemented last year. Amongst them are several Temasek-linked companies with large market capitalization in the STI such as Singtel, SATS and ST Engineering. In addition, local banks stocks have rallied significantly with the central bank’s announcement that dividend caps are lifted for locally incorporated banks and finance companies based in Singapore. The confluence of recent developments should bode well for Singapore equities in the near term.
Changes in Portfolio Allocation
Chart 2: Phillip SING Income ETF – Portfolio Allocation
Source: Phillip Capital Management (“PCM”); as of end-June 2021.
In the latest portfolio rebalancing, Phillip SING Income ETF saw the following rotations:
- Financials: 41.01% [+2.28%]
- REIT: 14.79% [-7.54%]
- Communication Services: 13.33% [-1.41%]
- Industrial: 16.85% [+8.01%]
- Consumer: 9.86% [+2.64%]
- Others: 21% [-4.1%]
- Cash: 95% [+0.13%]
Specifically, the Fund saw rotations out of “REIT” allocations [-7.54%], “Others” of [-4.1%] which mainly consists of the IT and healthcare industries, and “Communication Services” [-1.41%]. Following the rebalancing, the Fund increased its allocations mainly into “Industrial” due to increased allocation into Venture Corp at the start of the year, “Consumer” due to increased allocation into Genting Singapore, and “Financials” due to increased allocation into the banks.
Meanwhile, the counters removed from the Fund were Ho Bee Land, Keppel REIT, Raffles Medical Group and SPH REIT. New additions to the Fund were F&N, Frasers Centrepoint Trust, Prime US REIT, Keppel Infrastructure Trust, Keppel Pacific Oak US REIT.
Quality Dividend Income Cushioning Performance
For the period 1H2021, Phillip SING Income ETF announced a cash dividend of $0.015 per share at the end-June 2021. According to Bloomberg, based on the closing NAV price per share of $1.063 on 30 June 2021, the Fund’s trailing 12-month (“TTM”) dividend yield was about 3.76%, higher than SPDR STI ETF’s 3.11% and comparable to Nikko AM STI ETF’s 3.77% for the same period.
Table 3: Top 10 Holdings’ Metrics
Source: PCM; Bloomberg as of 30 July 2021
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