Despite retracting in 2Q 2012, various markets nonetheless still managed to end 1H 2012 on a positive note, thanks to a stellar first quarter rally. While equity markets fell sharply in May, a quick market rebound soon followed in mid-June after European leaders pledged to take more concrete steps to address their on-going debt problems. At the end of 1H 2012, investors who were not heavily concentrated in resources and/or gold and minerals related funds were likely to see their portfolios recover from May's negative performance. For more insight on the top and bottom performing markets of 2Q 2012, see Equity Market Review 2Q 12: Most Markets Still Positive in 2012.

Top Equity Funds

Of the top 10 performing funds, 4 of them made the list in 1Q 2012 (see Top Funds 1Q 12: Aggressive Funds Lead The Way), namely HGIF Turkey Equity Fund SGD CL AD, LionGlobal Vietnam SGD, Legg Mason CM Opps Fund A Acc USD and United Global IPO Fund. Of these 4 funds, HGIF Turkey Equity Fund SGD CL AD was the only fund which managed further gains in 2Q 2012, returning 27.8% year-to-date (as of 29 June 2012 in SGD terms), up from a 23.9% gain in 1Q 2012. While the fund lost some ground in 2Q, the Legg Mason CM Opps Fund A Acc USD continued to hold up extremely well for a US equity fund, gaining 17.7% in 1H 2012 compared to a 10.6% (total return basis, as of 29 June 2012 in SGD terms) gain for the S&P 500.

The other 6 "new entrants" were mostly Thailand and Singapore equity funds. With strong showings by both Thailand and Singapore equities in 1H 2012, this does not come as a surprise. While we carry 4 Thailand equity funds on the platform, Aberdeen Thailand Equity topped its peer group, strongly outperforming the SET Index, which gained 14.1% year-to-date (total return basis, as of 29 June 2012 in SGD terms). While benchmarked against the Thailand SET Index, the top 10 holdings of Aberdeen Thailand Equity differs significantly from the benchmark. The active selection has helped the fund perform favorably, netting a 18.8% return, ranking fourth in terms of overall equity fund performance. Similarly, Aberdeen Singapore Equity topped its peer group with a 15.5% return, significantly outperforming the STI Index's 10.6% return (total return basis, as of 29 June 2012 in SGD terms) in 1H 2012.

Top Bond Funds

As for fixed income funds, the top 10 performing funds comprised mainly of higher-yielding bond funds such as Asian bond funds, emerging market debt funds as well as high yield bond funds. Of these 10, United International Bond Fd, Fidelity Asian HY AMDIST SGD Hedged, LionGlobal Emg Mkt Bond A SGD Hedged, Legg Mason WA Global HY Fd A SGD H (qdis) and FTIF-Templeton Glb Total Ret A(mdis) SGD-H1 were also part of the list in 1Q 2012 (see Top Funds 1Q 12: Aggressive Funds Lead The Way). Among these 5 funds, 3 of them have an unconstrained global investment mandate, and were all heavily exposed to higher-yielding bonds (either corporates or emerging market sovereigns). In general, the riskier segments of fixed income such as high yield bonds and emerging market debts extended their outperformance over safer fixed income classes in 2Q 2012 as investors maintained their preference for yield-generating securities amidst the current low interest rate environment.

the bottom performers

For the bottom performing funds, the list is dominated by commodity-related funds. As of end 1Q 2012 there were only 3 such funds in the bottom performing funds list; the count has extended to 7 as of end 1H 2012. Led by the sharp fall in energy prices, funds which focus on resources fared poorly, such as JPM Global Natural Resources (USD) A (acc), First State Glb Resources and BNPPL1 Eq World Energy USD which fell -19.4%, -14.7% and -11.4% respectively at the end of 1H 2012 (on a year-to-date basis). None of these 3 funds appeared on the bottom performing funds list in 1Q 2012. Apart from resource-related funds, funds which have a significant exposure to gold or precious metal equities likewise fared poorly. JPM Global Mining USD A Acc, DWS Noor Prec Metals CL J SGD and United Gold & General Fund fell by -18.4%, -16.8% and -13.7% respectively.

With concerns over slowing growth across the globe and the on-going European debt worries yet to abate, commodities in general, ranging from resources down to minerals, have had a relatively disappointing 2012. Spot prices of such commodities have been easing in 2012, affecting the profitability of such commodity-related companies as well as affecting the returns of funds such as Schroder AS Commo EUR A Acc and DB Platinum Commodity RIC-C SGD Hedged where performance is more dependent on rising commodity prices.

Conclusion

While the market had found some respite (recovering from initial steep losses recorded in May, ending 2Q 2012 with a milder loss) following some positive developments on the European front, concerns over possible slowing global growth continues to linger. However, given the current attractive valuations of most equity markets, along with the low-yield environment which has characterised fixed income markets over the last couple of years, we continue to favor equities as a longer term growth driver of investment returns. Nevertheless, our prudent portfolio approach encompasses a need to diversify across asset classes, and we have always advocated having some exposure in lower-risk fixed income funds. We also reiterate our preference for SGD-hedged classes or SGD-focused fixed income funds which are structured or managed to guard against unexpected losses due to currency depreciation against the SGD.

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