Government of Singapore Investment Corp. has reduced its exposure in developed markets and cut its holdings in equities and bonds, as global uncertainties continue to weigh on the sovereign-wealth fund’s investment strategy.
GIC, which manages Singapore’s foreign-exchange reserves, said Tuesday in its annual report for the fiscal year ended March 31 that it now has increased cash in its portfolio and that it expects investment returns to be low till the global economy returns to “balanced and sustainable growth.”
While the allocation to cash for the year rose to 11 percent from 3 percent last year, GIC’s exposure to public equities fell to 45 percent from 49 percent. Allocation to bonds dropped to 15 percent from 20 percent last year as bond yields in the developed markets were pushed down to “abnormally” low levels by the flight to safe assets and central bank intervention.
“Due to the heightened uncertainty in global markets, we allowed the cash inflow from investment income and fund injection to accumulate during the year in preparation for better investment opportunities,” GIC Group Chief Investment Officer Ng Kok Song said in the report.
GIC describes itself as a long-term investor and doesn’t provide the absolute dollar amount of its investment or portfolio.
The fund, which, according to analysts, manages a portfolio of about $300 billion and has some high-profile investments in global financial institutions such as Citigroup Inc. C -0.59 percent and UBS AG, UBSN.VX +3.90 percent said that its exposure to developed equities market dropped to 30 percent from 34 percent, while that of emerging markets it remained unchanged at 15 percent.
The fund’s exposure in terms of geographical region showed that total investment in the Americas remained unchanged at 42 percent in the year ending March. Of this, exposure to the US accounted for 33 percent, unchanged from last year.
However, exposure to Europe dropped to 26 percent from the earlier 28 percent, Asia share continued to grow and accounted for 29 percent from 27 percent.
Ng said that within Europe, GIC’s exposure to Portugal, Ireland, Italy, Greece and Spain was 1.4 percent as of March 31 and it had largely invested in the real estate and selected equities in Italy and Spain.
“Looking ahead, we assess that the investment environment will be characterised by a global economy struggling to return to sustainable growth,” he said.
The annual report said that the annualised real rate of return from its investment for the 20 years through March, in excess of global inflation, was 3.9 percent in US dollar terms, unchanged from a year earlier.
For the five years ended in March, GIC said the annualised return in US dollar terms was 3.4 percent, while it was 7.6 percent for the 10-year period.
“For a large portfolio to earn returns above inflation over a long investment horizon, it must have significant exposure to equity and equity-like assets. The key risks to the portfolio are thus political and economic developments which impact equity returns,” said Ng. -By P.R. Venkat