BUY low and sell high - this oft-repeated investment strategy is among the most difficult to follow. How can investors be sure when equities will bottom? How should they time their entries and exits?
Evonne Tan, head of private banking at Barclays Singapore, says it is far easier to stay invested - but adjust one's portfolio as needed.
"History has shown that staying invested, whether markets are performing badly or well, provides the best chance of earning the returns needed to reach your investment objectives," she said.
Speaking at a seminar organised by online trading platform moomoo on Saturday (Jul 16), Tan said: "Time in the market matters more than market timing for long-term success, and the best portfolio for an investor is one that is held long-term across market cycles."
Staying invested does not mean, however, that one becomes passive in managing his/her portfolio.
Tan believes that the key to achieving success from investing long-term comes from learning to make changes to investments while keeping a "high enough allocation to risk assets" such that it does not alter one's long-term return portfolio.
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Portfolio optimisation, meanwhile, requires understanding one's risk appetite, liquidity needs and preferences, as well as return targets. Defining these will be crucial to deciding an optimal asset allocation and investment strategy.
According to an investing white paper by Futu, moomoo's parent company, global investors have responded to market volatilities in the first half of 2022 by trading more and re-balancing their portfolio with less volatile asset classes.
Compared with Hong Kong and US investors, Singapore investors also tend to hold more funds and bonds in their portfolios. The composition of fund products held by Singapore investors grew to 13.6 per cent as of Jun 15, 2022, from 10.3 per cent as of Dec 31, 2021.
Experts speaking at moomoo's event spoke on several ways investors could adjust their portfolios, including adding exposure to money market funds, gold and options.
Money market funds
CSOP Asset Management portfolio manager Bruce Zhang said money market funds are a useful defensive strategy against rising inflation rates.
Zhang noted that US dollar-denominated money market funds had actually benefited from a relatively stable yield and the US dollar's strength.
Several other factors have also contributed to this asset class' robust performance. These include their short tenor, the high quality and limited risk of the underlying asset, and the possibility of benefiting from higher interest rates. Money market funds tend to react quickly to interest rate hikes.
The benefits of the money market fund have not gone unnoticed.
According to Bloomberg data, the use of money market funds has continued to grow in recent years among retail investors and financial institutions. Zhang believes this demand arises from the fund's "relatively competitive return versus demand deposits", while still being very liquid.
Gold as a hedge
Head of SPDR ETF in Singapore Jermyn Wong recommended investors keep between 5 and 10 per cent of gold within their portfolios, on account of the yellow metal's strong performance in spite of rising interest rates.
Data from Bloomberg Finance showed gold prices had gained nearly 13 per cent to approximately US$1,700 per oz in July, from around US$1,500 per oz in January 2020.
The inverse relationship between gold prices and US real interest rates could also provide an opportunity for investors amid a climate of rising interest rates, Wong noted.
"Buying gold is not probably not going to make you rich. It's meant to be a good hedge and a diversifier within your investment portfolio," said Wong, adding that buying into gold could provide a sense of security for investors.
Generating cash flow with options
In the current volatile market environment, sophisticated investors could also use options to generate some additional return.
Borwen Neo, a speaker from The Next Level, which offers investing classes, said investors have the potential to generate a return on investment of between 2 and 6 per cent from a 1-month contract in the current market, which is more volatile.
This is higher than the 1 to 3 per cent return on investment one would expect selling options in a "normal" market, he added.
The additional capital generated can then be reinvested into other investment tools, such as equities.
This could be particularly helpful for those looking to buy shares in the current bearish economic outlook, Neo added.
Stocks remain the favourite
Despite the general fall in stock markets this year, investors in Singapore remain invested in equities. In fact, Futu's white paper showed a 52 per cent year-on-year increase in trading frequency for H1 2022.
Some of the most followed, discussed or traded stocks include software company Nvidia, Singapore-headquartered tech groups Sea and Grab Holdings, electric vehicle maker Tesla, and Futu.
On the Singapore market, the top traded stock by turnover was DBS. The bank saw a net retail inflow of S$885 million in the first 6 months of 2022.
While banks make up the largest chunk of the Straits Times Index (STI), at 45 per cent, real estate investment trusts (Reits) came in second, at 30 per cent.
Kang Wei Chin, assistant vice-president for ETF product management at Singapore Exchange (SGX), said the Reit sector has continued to attract a fair share of investor activity as Singapore reopens.
It now represents more than 10 per cent of the total market capitalisation of the Singapore stock market, and more than 20 per cent of day-to-day turnover.
Frasers Hospitality Trust, Ascott Residential Trust, Far East Hospitality Trust and CDL Hospitality Trusts, were among the top 10 strongest performing Asia-Pacific-listed Reits in the first half of the year.
Investors looking to gain exposure in a specific sector, be it in technology or the broad-based economy, may also consider the exchange-traded funds (ETFs) listed on SGX, said Kang. These ETFs would allow investors to diversify their portfolio's exposure without having to buy multiple securities.
Diversification is, after all, the best way to improve a portfolio's resilience. Said Barclays' Tan: "In the face of uncertainty and risks which we do not even know about, the best protection is probably to invest in a range of assets."
This article is brought to you by moomoo SG.
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