CPFIS funds performance down 14% in the last year, but positive over 3-year period

FUNDS under the CPF Investment Scheme (CPFIS) lost an average of 8 per cent in the quarter ended Jun 30, as rising interest rates and recession fears hit global stock and bond markets.

Still, they outperformed the MSCI World Index, which fell 13.8 per cent in the same period. On a 1 year cumulative basis, however, CPFIS funds’ returns were down 14.2 per cent, which was worse off than the MSCI World’s 11.3 per cent fall.

On a 3-year cumulative basis, returns for the CPFIS funds were up 8.5 per cent, said Morningstar Asia on Tuesday (Aug 23).

This comes as the US market faced an unusual combination of losses in both stock and bond markets in the first half, resulting in fixed-income securities not providing investors their usual refuge, Morningstar said.

Market conditions “shifted quite dramatically” at the start of this year amid surging inflation, tightened monetary policies, the Russia-Ukraine war and the resultant energy and food shortage, said Patrick Ge, Morningstar’s senior manager research analyst.

Equities and bonds in Asia also took a hit from China’s Covid-19 lockdowns and the liquidity crisis among its property developers.

Persistently high inflation and the shrinking gap between the long- and short-term treasury yields weighed on global bond markets as well, Ge said.

Investors reacted to the tough conditions by pulling money out of the market.

Singapore-registered unit trusts recorded net inflows of S$1.5 billion in the first half of 2022. But most of the inflows were from Q1; Q2 posted S$62.3 million in net outflows, Ge said.

Among CPFIS-included funds, China-related funds were top performers in Q2, amid a relief rally in the quarter due to policy support and easing lockdowns.

By asset class, however, all except for money market products posted losses in the quarter.

Ge expects that the economic uncertainty will remain top of mind for the second half of the year, as volatility drivers remain, including the Russia-Ukraine war, Europe’s energy crisis and China’s zero-Covid strategy.

Investors will likely also continue to watch inflation and recession risks, he said.

Nevertheless, Ge expects to see improved performance for CPFIS-included funds if some of the market volatility abates in the second half of the year.

He also noted that some fixed-income managers are seeing opportunities within Asian credits, as the market may be close to a bottom.