Singapore sovereign wealth fund GIC has trimmed its exposure to developed market equities such as U.S. stocks over the past year on high valuations, and cautioned it expects lower long-term returns in an uncertain investment climate.
GIC - ranked as the world's No.8 sovereign investor with $390 billion worth of assets according to Sovereign Wealth Fund Institute - flagged its preference for "reasonably priced" emerging market stocks while highlighting broader global risks of monetary policy tightening and trade frictions.
"This time around we in fact have reduced some equities and we have raised some cash to make sure that we can get through this environment well and have the ability to take advantage of any dislocations, which we expect to happen down the road," CEO Lim Chow Kiat told Reuters in an interview on Thursday.
The cautious undertone echoes comments from smaller Singapore peer Temasek Holdings which is looking to temper its pace of investments this year as trade tensions ratchet up between the United States and China.
The U.S. government escalated the trade spat this week by issuing a new threat to impose 10 percent tariffs on $200 billion of Chinese goods, after slapping tariffs on goods worth $34 billion last week. Beijing has so far responded with matching tariffs on U.S. exports.
"We maintain the environment is challenging. We'd prefer otherwise, but it remains challenging," said Lim, who took over as CEO in January 2017 after a 24-year career at GIC.
GIC said in its annual report that over a five-year period ending March 2018, its portfolio returned 6.6 percent per annum in U.S. dollar nominal terms, versus 5.1 percent a year ago.
That was just below the 6.9 percent return of its reference portfolio of 65 percent global equities and 35 percent bonds.
However, the volatility of GIC's portfolio was lower than the reference portfolio.
GIC reported a rolling annualized 20-year real return - its key measurement gauge - of 3.4 percent above global inflation for the year ended March, versus 3.7 percent a year ago.
FAVORS EMERGING MARKETS
The share of developed market equities in GIC's portfolio fell to 23 percent last year versus 27 percent a year ago, while allocation to bonds and cash edged up to 37 percent from 35 percent. Private equity made up 11 percent, up from 9 percent.
Unlike Temasek that focuses on equities, GIC, set up to manage foreign reserves, has a more conservative investment strategy with the long-term goal of beating global inflation.
Jeffrey Jaensubhakij, GIC's Chief Investment Officer, said emerging markets offered better value than developed markets.
"Over the year, what we've seen is that for a long term, emerging markets are still quite lowly priced or reasonably priced, and earnings potential is also quite good. So from a long-term perspective, it's reasonably attractive," he said.
With about 1,500 employees, GIC says it manages over $100 billion in assets in over 40 countries, but does not disclose the exact size of its portfolio. It has 32 percent of its assets in the United States, 19 percent in Asia excluding Japan and 13 percent each in Japan and the Euro Zone.
GIC and Temasek figured among lead investors in a $14 billion investment in China's Ant Financial Services Group earlier in 2018 - the biggest-ever single fundraising globally by a private company.
In January, GIC and the Canada Pension Investment Board also invested alongside private equity firm Blackstone Group LP (BX.N) in the $20 billion deal for a majority stake in the Financial and Risk business of Thomson Reuters Corp (TRI.TO) (TRI.N).