The Heritage and Stabilisation Fund (HSF) composite portfolio returned 2.24 per cent in the three months to December 2017, outperforming its Strategic Asset Allocation benchmark, which gained 1.83 per cent.
The HSF’s Quarterly Investment Report for October to December 2017, which has just been released by the Ministry of Finance, says the return was driven by the performance of the equity portion of Fund which contributed approximately 95 per cent of the total return, amounting to 2.13 per cent, while the fixed income portfolios added the remaining 0.11 per cent.
All the mandates with the exception of the US Short Duration Fixed Income portfolio generated positive returns, while the US Core Domestic equity portfolio was the only mandate that underperformed its benchmark.
The report stated: “The total net asset value of the Fund as at the end of December 2017 was US$5,888.6 million, compared with US$5,762.5 million at the end of the previous quarter. Of this total, the investment portfolio was valued at US$5,887.6 million, while the remaining portion (US$1.0 million) was held in cash to meet the day-to-day expenses that arise from the management of the Fund.”
On the performance of the investment portfolio, the US Core Domestic Equity mandate earned 6.24 per cent during the fourth quarter of 2017 compared to a return of 6.32 per cent for the Russell 3,000 ex Energy index.
“The relative underperformance was primarily due to the mandate’s overweight exposure to sectors that posted lower returns than the index, in particular, the information technology, health care and materials and processing sectors,” the report said.
“On the other hand, the mandate had an underweight allocation to the sectors that generated relatively better returns. The outperformance from these stocks was insufficient to offset the underperformance made on other holdings in the portfolio.”
The Non-US International Equity mandate returned 4.11 per cent versus a gain of 3.92 per cent for its benchmark, the MSCI EAFE ex Energy index. This outperformance was attributed to the external managers’ stock selection decisions. Stock selection was positive in the euro area and Asia (excluding Japan). These positive contributions sufficiently outweighed unfavourable country selection decisions.
The report continued: “The US Short Duration Fixed Income mandate generated a return of -0.32 per cent in the fourth quarter of 2017 as US Treasury yields at the short to medium portion of the curve increased over the period resulting in a decline in bond prices.
“Nonetheless, the mandate outperformed its benchmark, the Bank of America Merrill Lynch US Treasury 1-5 year index which lost 38 basis points.
“The shorter duration of the mandate relative to the benchmark contributed to the better performance of the portfolio given the upward movement in US Treasury yields. Additionally, exposure to spread sectors also benefited the mandate since most of the sectors outperformed US Treasury securities.”
