Investing your CPF Ordinary Account ("Ordinary Account") or CPF Special Account ("Special Account") monies is one way of accumulating your wealth over the years till you reach retirement age. Many investors have already started to invest using their ordinary account money but there are still quite a number that are reluctant to invest their special account money into CPFIS registered investments for the special account. Why?

Some investors might think the 4% return per year is sufficient to meet their retirement needs. Others might want to invest, but are unsure of the risks, and may not know which funds could achieve better returns than the current 4% per annum. However, we think that by not investing your CPF Special Account monies, you might be missing out on an opportunity to get potentially better returns. If you contribute $2,000 to your Special Account portfolio at the end of year starting from 25 years of age, at a return of 4% per annum, at the end of 30 years you would get only $112,170. Based on investment returns of 5%, 6% and 7%, you can actually see that your Special Account monies would be growing at a faster rate (see Table 1). But can an investor really expect such strong returns from a fund? In the next section, we would look at some examples of funds with relatively strong returns.

Table 1: Investing special account monies for 30 years on a regular savings plan

	Annual Rates of Return
Yearly Investment	4%	5%	6%	7%
$2000	$112,170	$132,878	$158,116	$188,922
$3000	$168,255	$199,317	$237,175	$283,382
$4000	$224,340	$265,755	$316,233	$377,843
$5000	$280,425	$332,194	$395,291	$472,304

Source: Fundsupermart compilations

Besides a possibly better return, what are other advantages of investing your Special Account? Special Account monies will be locked in till you are 55. So there's plenty of time to see your investments grow if you invest into a portfolio of well-managed funds. In addition, these monies cannot be used to pay off your mortgage loan or buy properties, thus the incentive is for you to invest over a long period of time. That means short-term fluctuations shouldn't matter as much. One last point is that, unlike using your CPF Ordinary Account monies, you need not pay agent bank charges for your Special Account monies. So what funds can you invest in using your Special Account?

Investment Options For Special Account Investors

Bond funds and balanced funds are the two main investment options available for fund investors using the Special Account. Balanced funds invest in both bonds and equities. The advantage of this is that the fund manager is able to actively manage the allocation between both asset classes. For example, if the equity market looks more attractive relative to the bond market, than the fund manager can allocate more into equities. We recommend balanced funds over bond funds, because these funds also invest in equities, and thus have a better potential for capital gain rather than just investing in bonds. Although a balanced fund typically takes on more risk than a bond fund, we think that it does make sense to invest in a more aggressive fund if it is for the longer term. We break up balanced funds into two sections: Asian balanced funds and global balanced funds. Which balanced funds showed consistency in their performance? Which of these balanced funds did better overall?

Global Balanced Funds

We compared the performance of 6 global balanced funds that we distribute on our platform. The table below shows the offer-to-bid returns as at end March 2005. The Franklin Templeton Global Balanced funds came up as the best performing fund for the periods shown. Five-year returns might seem relatively low at only 5.4%. However, we must take into account that 5 years ago, in the year 2000, global equity markets nearly reached the peak. From the peak markets suffered a strong correction. But despite the correction, this fund has an annualized return, which is higher than the CPF rate of interest. To get a better idea of how the fund performed during different years, we also tabulated the calendar year returns on a bid-to-bid basis.

Table 2: Annualized offer-to-bid returns as at end March 2005

Fund Name	1 year	2 years	3 years	4 years	5 years
Deutsche Premier Select Trust	1.6%	12.7%	1.8%	2.4%	-0.4%
First State Global Balanced	-1.3%	7.9%	0.5%	1.2%	-6.4%
Franklin Templeton F-Global Bal	3.5%	18.3%	5.4%	4.9%	5.4%
Henderson Global Balanced Fund	-1.1%	10.5%	-	-	-
Schroder Balanced Growth Fund	0.2%	11.7%	0.8%	-0.7%	-3.1%
UOB United Millennium Trusts 2	-0.1%	12.2%	3.7%	3.4%	-1.1%
UOB United Millennium Trusts 1	-1.3%	8.7%	4.8%	4.3%	1.2%

Source: Fundsupermart
The performance figures in the table above are calculated using offer-to-bid prices (a 5% sales charge is assumed here), with any income or dividends reinvested and are expressed in Singapore dollar returns.

We analyzed fund performances over the past five calendar years. For example calendar year return 2002, means how the funds performed in 2002 (calculated using bid-to-bid returns from 31 December 2001 to 31 December 2002). We have only considered returns up to the year 2000 because some of the global balanced funds did not have any performance prior to that.

Table 3: Comparison of calendar year performance

Fund Name	2004	2003	2002	2001	2000
Deutsche Premier Select Trust	8.6%	17.7%	-10.9%	-6.0%	-8.7%
First State Global Balanced	5.2%	16.9%	-9.9%	-6.4%	-23.2%
Franklin Templeton F-Global Bal	10.3%	30.8%	-14.0%	2.5%	9.3%
Henderson Global Balanced Fund	6.8%	19.8%	-	-	-
Schroder Balanced Growth Fund	7.6%	20.0%	-17.5%	-5.8%	-8.6%
UOB United Millennium Trusts 2	7.1%	20.6%	-6.6%	-6.7%	-8.5%
UOB United Millennium Trusts 1	5.9%	16.4%	-0.5%	-2.1%	-2.0%

Source: Fundsupermart
The performance figures in the table above are calculated using bid-to-bid prices, with any income or dividends reinvested and are expressed in Singapore dollar returns.

Table 4: Ranking of performance

Fund Name	2004	2003	2002	2001	2000
Deutsche Premier Select Trust	2nd	5th	4th	4th	5th
First State Global Balanced	7th	6th	3rd	5th	6th
Franklin Templeton F-Global Bal	1st	1st	5th	1st	1st
Henderson Global Balanced Fund	5th	4th	NA	NA	NA
Schroder Balanced Growth Fund	3rd	3rd	6th	3rd	4th
UOB United Millennium Trusts 2	4th	2nd	2nd	6th	3rd
UOB United Millennium Trusts 1	6th	7th	1st	2nd	2nd

Source: Fundsupermart
The performance figures in the table above are calculated using bid-to-bid prices, with any income or dividends reinvested and are expressed in Singapore dollar returns.

Franklin Templeton Funds-Global Balanced Fund was ranked the best global balanced fund for 4 out of 5 years. It delivered positive returns most of the years except for 2002, where the fund dipped by 14% (notice that during that year the other global balanced funds also had negative returns). It might seem that the fund is relatively volatile, but for investors that are investing their Special Account monies till retirement, the volatility would matter less. The reason behind that is that, markets go through cycles and at certain years the fund would perform better than other years. For example, taking into account some good and bad years, the average performance during the five calendar years smoothens out to 7.8%.

The fund was launched in February 1998 and is one of the funds with a long performance track record. The fund manager splits up the responsibility of managing this fund between the global equity team and the global bond team. They use a long-term, value-oriented style of investing and employ a bottom-up stock selection approach from a global universe of stocks. Global balanced funds typically invest in global bonds and equities. Asian balanced funds invest in Asian equities and bonds. We take a look at their performance below.

Asian Balanced Funds

For investors interested in Asian investments, there are three Asian balanced funds to choose from: the AIGIF Acorns of Asia Balanced Fund, First State Bridge and PRU Asian Balanced Fund. The AIGIF Acorns of Asia Balanced fund was launched in 2001 and the rest were launched recently in 2003. The table below shows the annualized offer-to-bid returns as at end March 2005. The AIG Acorns of Asia Balanced Fund performed very well by returning 26.6% over the 2-year annualized period. However, First State Bridge outperformed its peers with 6.6% returns over the 1-year period.

Table 5: Annualized offer-to-bid returns as at end March 2005

Fund Name	1 year	2 years	3 years
AIG Acorns of Asia Balanced Fund	5.2%	26.6%	10.2%
First State Bridge	6.6%	-	-
Pru Asian Balanced Fund	1.2%	14.9%	-

Source: Fundsupermart
The performance figures in the table above are calculated using offer-to-bid prices (a 5% sales charge is assumed here), with any income or dividends reinvested and are expressed in Singapore dollar returns.

Currently, the AIGIF Acorns of Asia Balanced fund is in our recommended list. Since it was launched, the fund had enjoyed positive returns for each calendar year. For example, it returned 10.5%, 39.1% and 3.8% in 2004, 2003 and 2002 respectively on a bid-to-bid basis. We are generally more positive on Asian investments thus we recommend investors to have exposure into Asian balanced funds as well. Such a tilt may actually improve the returns of a Special Account portfolio.

The table below shows some of the key differences between the two more popular balanced funds, which are First State Bridge and AIGIF Acorns of Asia Balanced Fund:

Table 6: Comparison Between Two Popular Asian Balanced Funds

	First State Bridge	AIGIF Acorns of Asia Balanced Fund
Equity Allocation	Skewed to investing in selected companies with high dividend yields & capital appreciation	Focuses on capital appreciation rather than yields, though the latter is one of the considerations in stock selection
Bonds	Invest into investment grade Asian corporate bonds denominated in USD	Invest in fixed income securities of high credit quality issuers primarily denominated in SGD
Dividend distributions	Fund paying a semi-annual distribution* which is reinvested (for fundsupermart investors)	No annual dividend distribution so far
Discounted FSM sales charge	2%	2.5%

Source: Factsheets, Interviews with fund manager
* Fund intends to distribute 3 cents per unit on 30 April 2005 and 1.5 cents per unit on 31 Oct 2005. From 2006 onwards, the fund intends to give 1.5 cents per unit during the same distribution periods.

The basic difference between the two funds is that the First State Bridge distributes a regular dividend and tilts its equity choices to good quality high dividend paying equities. The investment objective is to provide an annual distribution and medium term capital stability. This fund invests into the First State Asian Plus Equity Fund as well as First State Asian Quality Bond Fund, which are both Dublin domiciled funds. On the other hand, the AIGIF Acorns of Asia Fund does not pay out any dividends, the fund fact sheet mentioned that they are focusing on long-term capital appreciation and stable income.

Conclusion

The key reason for keeping a Special Account portfolio of Asian and global balanced funds is obviously the stronger potential returns. But we would like to re-emphasize that this is not the only advantage. Keeping such a portfolio also help investors to stay disciplined and accumulate monies for the purpose of retirement. Since the monies can only be withdrawn at 55, even if there are profits from the portfolio, it cannot be used to purchase a property, buy a car or pay for your travel expenses. In this way, the investor is able to effectively accumulate wealth at a possibly better return than the existing 4% return per annum. As our salaries are given to us on a monthly basis, one way to invest the special account monies would be to invest a lump sum and take up a regular savings plan that invest into the portfolio on a monthly basis. Despite the better returns on Asian balanced funds, we still recommend investors to diversify their holdings of these balanced funds. For example, an investor could invest 30% in the Asian Balanced Fund (either the AIGIF Acorns of Asia Balanced Fund or the First State Bridge) and the rest in the global balanced fund (the Franklin Templeton Funds -Global Balanced Fund), as set out in the pie chart below.

 

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