Q3 2023 Portfolio performance

• As of 30 September 2023, UOBAM Megatrends portfolio returned -4.2% for the third quarter of 2023.

Portfolio returns (% in SGD terms) and ETF weight (%) 30 June 2023 – 30 September 2023

Source: Factset/Bloomberg/UOBAM. Portfolio returns as at 30 September 2023. Exchange Traded Fund (ETF) average weights from 30 June – 30 September 2023, cash remains at approximately 2.0%.

The information about asset allocation provided herein are subject to change at the discretion of UOBAM without prior notice. Past performance of the portfolio or UOBAM and any past performance, prediction, projection or forecast on the economy or markets are not necessarily indicative of the future or likely performance of the portfolio or UOBAM. Returns are calculated on a single pricing basis.

Breakdown By Theme

1) Changing Demographics

Performance

Source: Factset/Bloomberg/UOBAM. Returns from 30 June 2023 – 30 September 2023.

Past performance of the portfolio or UOBAM and any past performance, prediction, projection or forecast on the economy or markets are not necessarily indicative of the future or likely performance of the portfolio or UOBAM. Portfolio returns on the scheme is calculated on a single pricing basis.

Market Development

Equities market sold off in the third quarter of 2023. Growth stocks performed well initially but rising rates put pressure on growth stocks as investors assessed the impact of sustained higher rates. As such, defensive sectors such as healthcare held up better, and the iShares Global Healthcare ETF was one of the better performing ETFs in the portfolio.

The Columbia Emerging Markets Consumer ETF also held up well as Indian consumer names performed well during the quarter. Likewise in the U.S., consumer spending growth remains strong, benefiting the Global X Millennial Consumer ETF that held up well compared to the broader equities market.

Outlook

The outlook of the healthcare sector remains positive. Valuations remain relatively attractive, company fundamentals such as sales and earnings growth are strong, and innovation remains robust with continued developments in areas such as Alzheimer’s disease, metabolic diseases, and cancer as well as companies discovering drugs using new methods such as messenger RNA and gene therapy. An aging population and the use of innovative technologies will provide a strong tailwind for the sector. The resilience of the healthcare sector would also provide a strong buffer and act as a portfolio stabiliser in a volatile market, as seen in the third quarter of this year. For the consumer discretionary sector, moderating inflation in the US has helped to ease the worries of consumers. US consumer sentiment remains optimistic, and younger consumers, Gen Z and millennials, still intend to splurge¹. In China, consumer spending continues to trend up as sentiments improve. China also remains committed to transit the country to a consumption-driven growth model.

2) Environmental

Source: Factset/Bloomberg/UOBAM. Returns from 30 June 2023 – 30 September 2023.

Past performance of the portfolio or UOBAM and any past performance, prediction, projection or forecast on the economy or markets are not necessarily indicative of the future or likely performance of the portfolio or UOBAM. Portfolio returns on the scheme is calculated on a single pricing basis.

Market Development

The Environmental theme was the worst performing for the third quarter of 2023. Several top holdings fell sharply over the quarter as worries about higher interest rates continue to hit clean-energy stocks. Shares of American electric utility company NextEra Energy fell as its renewable-energy subsidiary revised down its annual growth expectations through 2026 due to higher borrowing costs that are making it more challenging to fund projects. Likewise, the world's largest offshore wind farm developer – Orsted, plunged 20 per cent in a day on risk of a $2.3 billion impairment loss due to rising construction costs and soaring interest rates for its US assets. On the other hand, the First Trust Water ETF held up better due to its more defensive nature.

Outlook

Despite these near-term headwinds, we continue to see the environmental theme having strong growth as the world moves towards net-zero. The demand for renewable energy continues to soar, yet global investment in clean energy is still far below where it needs to be. Furthermore, rising global temperatures driven by climate change highlights the need for more alternative energy and faster transition away from fossil fuels. In Europe, the move to reduce reliance on Russian oil and gas has also given clean-energy projects impetus and led to the European Union producing an all-time high amount of wind and solar energy². Enterprises and government agencies have been trying to close the supply and demand gap, and are directing funding towards achieving new energy sources and lower carbon footprints. From vehicle electrification to clean energy transformation, the structural demand for renewables would accelerate. With such structural tailwind from the global energy transition, we remain positive on the outlook of investing in renewable and efficient technologies.

3) Digital

Performance

Source: Factset/Bloomberg/UOBAM. Returns from 30 June 2023 – 30 September 2023.

Past performance of the portfolio or UOBAM and any past performance, prediction, projection or forecast on the economy or markets are not necessarily indicative of the future or likely performance of the portfolio or UOBAM. Portfolio returns on the scheme is calculated on a single pricing basis.

Market Development

The Digital theme has held up well in the third quarter of 2023. The market rally broadened beyond the “Magnificent Seven” mega cap stocks in the early part of the quarter, and this benefited the Amplify Online Retail ETF that has a small/mid cap tilt. It rose 15 per cent before returning most of its gains in the later part of the quarter. Global equities started to trend downward in August 2023 as investors reassessed the nominal "neutral rate" due to inflation persistence and anticipated that the US Federal Reserve (Fed) will keep interest rates higher for longer due to the strength of the economy. This put pressure on stock prices and much of investors’ enthusiasm driven by the Artificial Intelligence (A.I.) rally in the second quarter of this year largely dissipated.

Outlook

The pace and impact of digital transformation is profound and game changing. Digital business opportunities are expanding rapidly. We continue to see strong structural growth in the digital space as innovation technologies come to the fore, be it in areas such as A.I., blockchain or cybersecurity. A.I. usage continues to proliferate, powering everything from our smartphones and autonomous-driving features on cars, to generative AI applications such as ChatGPT. And as the size of the digital economy grows, so does the frequency and magnitude of digital crimes. Companies continue to increase spending to enhance security, growing by 12.4 per cent annually . McKinsey has estimated a US$2 trillion market opportunity for the cybersecurity industry as the damage from cyberattacks continues to increase³. We believe that enormous value will be created from these technologies for the global economy, and we at the beginning of the journey to harness their power and capabilities.

¹McKinsey, Stable and spending: An update on the state of the US consumer, 5 October 2023

²U.S. Embassy & Consulates in Russia, 12 May 2023

³McKinsey, New survey reveals $2 trillion market opportunity for cybersecurity technology and service providers, 27 October 2022