The authorised and recognised unit trusts registered for sale in Singapore posted net inflows of $1.5 billion in the first half of the year, according to Morningstar’s Singapore Fund Flow Report.
This is based on the data submitted by the participating members of the Investment Management Association of Singapore (IMAS), says Morningstar senior manager research analyst Patrick Ge.
Ge says: “It is worth noting that most of the inflows came in the first quarter. The second quarter actually saw small net outflows of about $62 million, which reflect the market volatility that we saw.
“The current market volatility could also be an opportunity for active fund managers to prove their worth and skills. Investors should continue to focus on selecting funds that can deliver superior risk-adjusted returns over a full market cycle and are managed by a capable investment team with a repeatable investment process.”
Equity funds top net inflows
Breaking down the data by asset type, equity funds still posted the highest net inflows of $563.45 million. However, the reading was weaker than for the previous quarters, where equity funds gathered flows of $1 billion for the first quarter of 2022 and $1.9 billion for the fourth quarter of 2021.
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Fixed-income funds saw net redemptions amounting to $873.67 million. Gross inflows into bond funds slowed to $1.36 billion from the first quarter’s $2.8 billion and from 4Q2021’s $4.3 billion. However, gross outflows were at $2.2 billion.
Gross inflows into allocation funds were stable q-o-q. Inflows were $1.1 billion, netting out the $797.75 billion outflows for net inflows of $364.24 million in the second quarter. Money market funds, on the other hand, posted net outflows during the second quarter.
In terms of the performance of the Central Provident Fund Investment Scheme (CPFIS)-included funds, Ge says that the overall average performance was down 14% for the first half of 2022 — 6% in the first quarter and the remaining 8% in the second quarter.
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Despite the losses, Ge high-lights that the average return of the CPFIS-included funds still bested the MSCI World Index which slipped 18% in the first half of the year, while matching the MSCI Asia Ex-Japan’s loss of 14% and slightly lagging behind the FTSE WGBI which dipped 12% during the same period.
“Looking at longer periods, [the CPFIS-included funds] have actually posted a cumulative gain of 8.5% over the trailing three years. It is important to look at the longer-term picture as well instead of just short-term underperformance,” says Ge.
All asset classes — except money market funds — retreated in the first half of 2022, while longer-term performance remained largely positive. Equity CPF funds registered a loss of 16%, while bond funds and allocation funds fell 8% and 12% respectively.
Data as at June 30. Credit: Morningstar
Outlook for second half
For the 2H2022 outlook, investors should look out for market volatility, inflation and growth forecasts, says Ge. Although economic uncertainty may have peaked in the first half of the year, it remains top of the line for many investors — especially relating to volatility drivers such as the outcome of the Russia-Ukraine war and the downside risks from the European energy crisis as the winter months near.
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“The second thing that we should continue to watch is inflation,” says Ge. “The key question that most investors are asking is whether inflationary pressures are here to stay or have peaked. There have been signs in some markets that some of these price pressures are easing. We have seen this show up in some of the numbers in July such as the cooling demand for labour, although inflation still remains relatively high.”
Ge adds: “It is also unlikely that the US Federal Reserve (Fed) will pivot from their hawkish monetary policy rhetoric. That said, the Fed’s ongoing aggressive monetary tightening also raises the question of whether it could lead to hard landing and a potential recession.”
Morningstar analysts project that US inflation will average 5.2% over 2022 and begin to decrease later this year, dropping to 1.7% in 2023 and bottoming out at 1.3% in 2024 before normalising a little over 2.0% thereafter. This outlook owes greatly to the unwinding of price spikes caused by supply constraints in durables, energy and other areas.
In terms of growth forecasts, Ge points out that credit spread levels represent that the markets are pricing in a relatively high probability of a near-term recession in the US.
Considering that Morningstar analysts do not expect that the US will enter a recession, spread levels provide investors with an attractive yield pick-up for the added credit risk. As the economy expands, it will help limit defaults, resulting in fewer ratings downgrades, and lead to ratings upgrades.
