© 2020 FactorResearch

FACTOR INVESTINGIN SINGAPORE

2

THE RISE OF FACTOR INVESTING

3

Factor Investing Is Rules-Based Investing

THE CONFUSING WORLD OF FACTOR INVESTING

Factor

Investing

Risk

Premia

Style

Premia

Smart

Beta

Strategic

Beta

Long-Short, Equal-Weighted Long-Only, Market Cap-Weighted

4

Factor Investing Is Steadily Gaining AUM

SMART BETA ASSETS UNDER MANAGEMENT

Source: MorningStar

7298 75

99134 153

201

318

402448

543

701 705

836

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Smart Beta Assets under Management in the US ($ Billions)

5

Popularity Is Rising Across Regions

SMART BETA ADOPTION

Source: FTSE Russell Smart Beta Survey

0%

10%

20%

30%

40%

50%

60%

70%

US Europe APAC

Smart Beta Adoption

2014 2015 2016 2017 2018 2019

6

SNAPSHOT OF THE SINGAPORE MARKET

7

Similar Trends in Stock Market Performance

STI VS ALL WORLD INDEX

Source: FactorResearch

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2007 2009 2011 2013 2015 2017 2019

Straits Times Index (STI) vs FTSE All-World Index: Performance

Straits Times Index (STI) FTSE All-World Index

8

Strong Sector Biases in the Singapore Stock Market

STI COMPOSITION

Source: FactorResearch

30%

27%

18%

11%9%

4%

24%22%

27%

11%

8%

4%

Financials Industrials Real Estate ConsumerStaples

CommunicationServices

ConsumerDiscretionary

STI and Extended Singapore Stock Universe: Breakdown by Sectors (2020)

Straits Times Index (STI) Extended Singapore Stock Universe

9

FACTOR INVESTING IN SINGAPORE

10

Definitions in line with Academic & Industry Standards

FACTOR DEFINITIONS

Factor Metrics for Stock Selection High Factor Exposure Supported by

Academic Research

Value An equal-weight combination of price-to-

book and price-to-earnings multiples

Cheap valuation Yes

Size Current market capitalization Low market capitalization Yes

Momentum Last 12-months share price performance,

excluding the most recent month

High performance Yes

Low Volatility Share price volatility over the last 12-months Low volatility Yes

Quality An equal-weight combination of return-on-

equity and debt-over-equity

High quality Yes

Growth An equal-weight combination of the 3-year

sales-per-share and earnings-per-share

growth

High growth No

Dividend Yield Current dividend yield High dividend yield Mixed

Source: FactorResearch

11

Buy Cheap Stocks, Sell Expensive Stocks

VALUE FACTOR

-

500

1,000

1,500

2,000

2,500

3,000

2005 2007 2009 2011 2013 2015 2017 2019

Value Factor (Long-Short) Performance: Singapore vs Global

Singapore Global

Source: FactorResearch

▪ Comparable to global factor performance, albeit better in recent years

12

Buy Small Stocks, Sell Large Stocks

SIZE FACTOR

Source: FactorResearch

▪ Comparable to global factor performance

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005 2007 2009 2011 2013 2015 2017 2019

Size Factor (Long-Short) Performance: Singapore vs Global

Singapore Global

13

Buy Winners, Sell Losers

MOMENTUM FACTOR

Source: FactorResearch

▪ Comparable to global factor performance

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2005 2007 2009 2011 2013 2015 2017 2019

Momentum Factor (Long-Short) Performance: Singapore vs Global

Singapore Global

14

Buy Low-Risk Stocks, Sell High-Risk Stocks

LOW VOLATILITY FACTOR

Source: FactorResearch

▪ Comparable to global factor performance, but more extreme positive returns

-

2,000

4,000

6,000

8,000

10,000

12,000

2005 2007 2009 2011 2013 2015 2017 2019

Low Volatility Factor (Long-Short) Performance: Singapore vs Global

Singapore Global

15

Buy High Quality Stocks, Sell Low Quality Stocks

QUALITY FACTOR

Source: FactorResearch

▪ Comparable to global factor performance, but less positive returns

-

500

1,000

1,500

2,000

2,500

2005 2007 2009 2011 2013 2015 2017 2019

Quality Factor (Long-Short) Performance: Singapore vs Global

Singapore Global

16

Buy High Growth Stocks, Sell Low Growth Stocks

GROWTH FACTOR

Source: FactorResearch

▪ Similar magnitude of returns to global factor performance, but different trends

-

200

400

600

800

1,000

1,200

1,400

1,600

2005 2007 2009 2011 2013 2015 2017 2019

Growth Factor (Long-Short) Performance: Singapore vs Global

Singapore Global

17

Buy High Yielding Stocks, Sell Low Yielding Stocks

DIVIDEND YIELD FACTOR

Source: FactorResearch

▪ Different to global factor performance given consistently positive returns

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2005 2007 2009 2011 2013 2015 2017 2019

Dividend Yield Factor (Long-Short) Performance: Singapore vs Global

Singapore Global

18

Ranked on Value, Size, Momentum, Low Volatility & Quality

MULTI-FACTOR INVESTING

Source: FactorResearch

▪ Comparable to global factor performance, albeit more positive returns

▪ Growth factor is excluded due to lack of academic support

-

500

1,000

1,500

2,000

2,500

3,000

2005 2007 2009 2011 2013 2015 2017 2019

Multi-Factor Portfolio (Long-Short) Performance: Singapore vs Global

Singapore Global

19

Ranked on Value, Size, Momentum, Low Volatility & Quality

MULTI-FACTOR PORTFOLIO IN SINGAPORE

Source: FactorResearch

▪ Portfolio as of end of June 2020

Multi-Factor

Long Portfolio: Highly Ranked Stocks Short Portfolio: Low Ranked Stocks

Rank RIC Ticker Company Name RIC Ticker Company Name

1 PROP.SI OYY PropNex SCMN.SI S51 Sembcorp Marine

2 HONG.SI H30 Hong Fok SIAL.SI C6L SIA

3 SASS.SI CRPU Sasseur REIT GSHC.SI BDX GSH

4 VLUE.SI BN2 Valuetronics ESRR.SI J91U ESR-REIT

5 BHGR.SI BMGU BHG Retail REIT THOS.SI A50 Thomson Medical

6 TIAN.SI T14 Tianjin Zhongxin DAIR.SI D01 Dairy Farm

7 IREI.SI UD1U IREIT Global MAPE.SI RW0U Mapletree NAC

8 CHSN.SI QES China Sunshine STEL.SI Z74 Singtel

9 BRCA.SI BEC BRC Asia COSC.SI F83 Cosco Shipping

10 KOUF.SI VL6 Koufu CALT.SI K2LU ARA LOGOS REIT

20

FACTOR INVESTING & ASSET ALLOCATION

21

Using Factors to Ride the Economic Cycle

FACTOR INVESTING & ASSET ALLOCATION

Source: FactorResearch

▪ Low Volatility

▪ Quality

▪ Value

▪ Value

▪ Dividend Yield

▪ Size

▪ Momentum

▪ Quality

▪ Low Volatility

▪ Momentum

▪ Value

▪ Size

Growth Slowdown

RecessionRecovery

22

Value Performs When GDP Growth Is Positive or Accelerating

CASE STUDY: VALUE FACTOR & ECONOMIC GROWTH

Source: FactorResearch

1.80%

-1.90%

1.70%

0.80%

Real GDP GrowthPositive

Real GDP GrowthNegative

Real GDP Accelerating Real GDP GrowthSlowing

Value Factor (Long-Short) Returns & Real GDP in the US (1947 - 2017)

23

FACTOR EXPOSURE OF SINGAPORE MARKET

24

No Structural Factor Exposure

FACTOR EXPOSURE OF SINGAPORE MARKET

Source: FactorResearch

(0.8)

(0.6)

(0.4)

(0.2)

-

0.2

0.4

0.6

0.8

2005 2007 2009 2011 2013 2015 2017 2019

Factor Exposure Analysis of the Singapore Stock Market: Factor Betas

Value Size Momentum Low Volatility Quality Growth Dividend Yield

25

No Surprises Here

FACTOR EXPOSURE BY SECTORS

Source: FactorResearch

Singapore Stock Market: Average Factor Exposure by Sectors Singapore Stock Market: Average Factor Exposure by Market Capitalization

Sector Stocks Value Size Momentum Low Volatility Quality Growth Dividend Yield Multi-Factor

Real Estate 59 54 54 55 58 66 56 53 59

Industrials 18 57 64 73 66 58 53 66 72

Staples 9 73 76 55 54 57 56 75 72

Technology 8 79 30 45 88 17 43 60 44

Communication 5 66 68 60 21 69 80 33 53

Discretionary 5 62 65 45 48 58 61 55 55

Financials 4 55 111 42 14 32 29 46 37

Health Care 4 69 64 46 38 43 59 83 42

Utilities 2 58 63 54 48 90 21 27 70

Energy 1 26 38 64 50 12 28 55 11

Materials 1 9 11 97 68 3 15 83 8

Legend: Positive Factor Exposure Negative Factor Exposure

26

No Surprises Here Either

FACTOR EXPOSURE BY MARKET CAPS & MARKETS

Source: FactorResearch

Singapore Stock Market: Average Factor Exposure by Market Capitalization Singapore Stock Market: Average Factor Exposure by Geography

Sector Stocks Value Size Momentum Low Volatility Quality Growth Dividend Yield Multi-Factor

Large Stocks 58 63 88 54 43 53 55 57 65

Small Stocks 58 54 30 59 71 63 52 57 53

Legend: Positive Factor Exposure Negative Factor Exposure

Singapore Stock Market: Average Factor Exposure by Geography

Geography Stocks Value Size Momentum Low Volatility Quality Growth Dividend Yield Multi-Factor

Singapore 73 65 63 56 49 58 56 60 59

China 12 26 38 54 62 51 29 52 30

Hong Kong 7 43 81 84 65 56 75 53 84

South East Asia 12 62 56 58 79 58 49 57 72

Developed Markets 12 58 38 39 74 69 44 47 57

Legend: Positive Factor Exposure Negative Factor Exposure

27

THANK YOU & Q&A

28

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Smart Beta

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Models

Value, Size,

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Multi-Factor

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PerformancePortfolio

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Exposure

29

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