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Lion-OCBC Securities ETFs are efficient 'building blocks' for a lower volatility investment portfolio

Lim Hui Jie
Lim Hui Jie7/21/2022 10:26 AM GMT+08  • 7 min read
Lion-OCBC Securities ETFs are efficient 'building blocks' for a lower volatility investment portfolio
With consumer prices hitting multi-decade highs, the key to surviving volatility for investors is by having “efficient building blocks” in their portfolio
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Many have said that the world that we live in is volatile, uncertain, complex and ambig­uous — also dubbed the VUCA world. Since the start of 2022, investors have seen the US Federal Reserve start raising interest rates, new variants of the Covid-19 virus emerging, and the first major military conflict on the European continent since 1945 in the form of the Russia-Ukraine war — five months long and counting.

All these have caused a fair amount of turbulence in the mar­ket, and with such an uncertain out­look, investors may be tempted to stash their cash under the prover­bial mattress and hope for condi­tions to settle down.

Even that strategy will see their money being eroded by rising infla­tion, and as a famous movie quote goes, “what if this is as good as it gets?” From the perspective of OCBC Securities, given the infla­tionary environment where con­sumer prices are hitting multi-dec­ade highs, the key to riding out this ongoing volatility for investors is by having “efficient building blocks” in their portfolio.

The first “building block” lies right here at home. Singapore’s market has been hailed as a “shelter in the storm” by Morgan Stanley in a May 12 report, which described Singa­pore equities as a “safe haven amid choppy global markets”.

They also note that interest rates are likely to rise further, but on a rel­atively moderate path compared to the US, as the Monetary Authority of Singapore (MAS) targets more currency appreciation to keep in­flation in check.

See also: Following OPEC+ meeting, can oil serve as a hedge against inflation and recession?

“That relative currency strength is conducive to capital flows to Sin­gapore assets, providing support for the equity market, in our view,” adds Morgan Stanley. There are also domestic corporate restruc­turing activities broadening alpha generation opportunities, and a rel­atively late reopening cycle driv­ing corporate earnings growth to outpace other regions.

Besides the Singapore-specific positive aspects, there are other broad trends investors might want to take note of when assembling additional “building blocks” for their portfolios. Some examples cited by OCBC Securities include the trend of decarbonisation, be­cause trends like environmental, social, and corporate governance (ESG) investment and climate risks are here to stay.

One of the trends that have been gaining traction is low-car­bon investing, which enables the deployment of capital into pro­jects that promote the decarbon­isation of the economy. According to the Asia Investor Group on Cli­mate Change, over 50% of Asian investors are engaged in or active­ly considering low-carbon or cli­mate-aligned investment targets.

To capture these two areas in one fell swoop, the brokerage house has teamed up with asset man­ager Lion Global Investors to offer the Lion-OCBC Securities Singa­pore Low Carbon ETF (see Chart 1), which tracks the iEdge-OCBC Low Carbon Select 50 Capped In­dex.The index is described as “a 21st century and green version of Singapore’s Straits Times Index (STI), with a heavier allocation to real estate, and a strong low car­bon focus.”

See also: Plugging the cybersecurity talent gap in Singapore

Most notably between Dec 31, 2021 and June 30, the iEdge-OCBC Singapore Low Carbon Select 50 Capped Index has outperformed peer indices such as the MSCI World Index, S&P 500 Index and Euro STOXX 50. Within the same period, this index demonstrat­ed the lowest decline at –4.99% compared to the S&P 500 Index’s –17.5% (see Chart 2).

Opportunities abroad

Meanwhile, for investors that want to venture beyond Singapore’s shores, one economy that may have headroom for recovery will be China, the world’s second larg­est economy with extensive trade and business ties with practically all countries including Singapore.

The country had started a crackdown on the tech and prop­erty sector in 2021, headlined by actions against Alibaba and Ten­cent, as well as the Evergrande debt crisis. The resulting sell-off had led to the share price of the Lion-OCBC Securities Hang Seng TECH ETF and the Lion-OCBC Se­curities China Leaders ETF trad­ing below their initial listing price.

Since late May, however, the two ETFs have been on an up­ward trend. The Lion-OCBC Se­curities Hang Seng TECH ETF has gained a whopping 43.34% since its low in March, and the Li­on-OCBC Securities China Lead­ers ETF rose 16.65% at the end of 2Q2022 from their March lows (see Charts 3 and 4).

For more stories about where money flows, click here for Capital Section

OCBC Securities highlighted this was due to the easing of reg­ulations, together with the Chi­nese government taking concrete actions to support the economy and stabilise financial markets.

During the Politburo meeting chaired by Chinese President Xi Jinping on April 29, China’s top decision-making body pledged to support the healthy development of tech companies, fuelling a 10% surge in the Hang Seng TECH In­dex within the same day.

In addition, on May 25, Chi­na’s Premier Li Keqiang also held a nationwide video conference to reinforce China’s focus to main­tain economic stability and pre­serve growth. This was followed by Shanghai ending its lockdown on June 1.

By providing exposure to the 30 largest tech-themed compa­nies listed in Hong Kong, the Li­on-OCBC Securities Hang Seng TECH ETF is well positioned to cap­italise on the long-term growth story of the Chinese tech sector.

Lion Global Investors also be­lieves that China’s policy on loos­ening and easing of Covid-19 re­strictions will continue to drive growth this year, while other countries such as the US focus on policy tightening to tackle in­flationary fears.

By providing exposure to 80 industry leaders across 12 sec­tors, the Lion-OCBC Securities China Leaders ETF is well-posi­tioned to ride on this new wave of policy loosening. These ETFs cover a large share of the recov­ery story, both in the near-term in China, and over the long-term in Singapore. More importantly, investing in ETFs means that in­vestors’ portfolios are more di­versified and less vulnerable to market volatility.

While investors are free to build their portfolios to suit their needs and investment goals, be they in­dividual companies or other in­struments like bonds, these ETFs are certainly a worthy addition to ride out the economic storm.

To find out more about these ETFs, visit www.iocbc.com/sglowcarbon or https://go.ocbc.com/bcip for BCIP solutions

Disclaimer:

This ETF is subjected to the following principal risks including but not limited to market and credit risk, foreign exchange risk, liquidity risks and product specific risks relating to the ETF. Some or all of the risks may adversely affect the fund’s net asset value, yield, total return and/or its ability to achieve its investment objective. You should note the risk factors associated with investing in the ETF. The statements in the prospectus are intended to be summaries of some of these risks. They are by no means exhaustive and they do not offer advice on the suitability of investing in the ETF. You should read the prospectus and carefully consider the risk factors described together with all of the other information included in the prospectus before deciding whether to invest in the ETF.

This article is written by The Edge and is for information purposes only. OCBC Securities Private Limited does not endorse and makes no representation or warranty whatsoever in respect of any view expressed here and shall not be responsible for any loss or damage whatsoever arising, directly or indirectly, howsoever as a result of any person acting on any view expressed here. For full disclaimer, visit www.iocbc.com/sglowcarbon. This advertisement has not been reviewed by the Monetary Authority of Singapore.

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