Another Strong Year for Equities: Market Review December 2024

Executive Summary 

Providend portfolios have done well over the past four-year period, with 2024 capping off yet another strong year for equities with double-digit returns. While the portfolios have done well, we know that there will always be periods of turbulence ahead. Even strong years like 2023 and 2024 had periods where markets had sharp reversals. Staying invested and diversified is key to capturing returns. It helps to have a dedicated adviser to journey with you so that you can achieve your long-term wealth goals.

December Performance

2024 has capped off a very spectacular four-year period for the markets, with three years of double-digit returns punctuated by a bear market in 2022. Despite the drawdown, we have seen markets recover and make new highs by the end of 2024. Reflecting on this period, it has been remarkable how quickly stock markets have bounced back from the shock of rate hikes and inflation in 2022.

Exhibit 1 – Index Plus Portfolio Performance (% Total Return), 2024 (In SGD)

As seen in Exhibit 1, SGD returns have been comfortably double digits for the equity-heavy portfolios, and the portfolios with more fixed income have also done well as high bond yields (>4% in USD terms) have contributed to the strong returns for the Low Risk and Conservative portfolios.

However, the year-end numbers alone do not tell the whole story. Stocks and bonds did well in 2024 overall; however, it was not a smooth ride, and there were periods when stocks had a lot of volatility over the year.

Exhibit 2 – MSCI All Country World Index ETF (ACWI)

Looking at the chart of the ACWI ETF, an ETF that tracks the MSCI All Country World Index, which has both developed world and emerging market stocks, we can see that it returned around 17% over one year. However, that return was punctuated by lots of volatility, with a sharp drop in March 2024, and then another period in July and September.

This point is just to highlight that there is no smooth ride in the financial markets, as prices can fluctuate wildly over short periods. However, over a longer period, you are likely to capture the returns of the asset class.

Turbulence and How to Manage It

The key, then, is really to manage the turbulence so that an investor can remain invested and in their seat. Recently, on a flight back to Singapore, I had the chance to experience how air turbulence was managed by the flight crew on the airplane. We were approaching landing, but there was extremely bad weather over the island, so the plane had to circle the airport. The captain activated the seat belt sign, and the crew was able to continue service but very carefully just in case turbulence hit. Eventually, the plane was given the green light to descend by the airport control, and despite some bumps due to the weather, we made it to the ground safely.

Similarly, investors look at different ways to manage the volatility or the ups and downs of the market in their portfolios. Some investors will look to add less volatile asset classes into the portfolio to smooth out returns. One example is short-term bonds or fixed income. The three-year standard deviation of an index of one- to three-year US Treasury bonds is 2.44%[1]. Contrast that to the three-year standard deviation of the MSCI AC World Index at 16.7%. The addition of a lower-risk asset into the portfolio helps to reduce the overall volatility, at the cost of some returns. This is one of the ways Providend manages risk in the portfolios.

Other methods that investors might consider are using hedges that move in the opposite direction of the market, such as buying puts or even going short futures. However, these methods can be very costly to maintain, and unlike holding fixed income, they don’t provide a return unless the market falls.

Lastly, there is also the option of riding out the volatility with an experienced guide, such as the case of going through flight turbulence under the care of an experienced flight crew. This is one of the ways Providend adds value with our Turbulence Management Plan, or TMP for short. In addition to managing the risk within our portfolios through careful asset allocation and managing the risk during our wealth planning process by carefully assessing the client’s risk appetite and assigning the appropriate portfolio mix to our clients, we also work with clients during periods of market volatility to keep them invested so that they will be able to fully benefit from the asset class returns.

Exhibit 3 – Index Plus Portfolio Performance (% Total Return), 2021 to 2024 (Annualised in SGD)

The benefit is shown in Exhibit 3, as over a four-year period from 2021 to 2024, our portfolios have been able to deliver positive returns over time despite the market fall in 2022 and the uncertainty over the recovery in 2023 and 2024. In order for an investor to experience these returns, the investor would have had to stay invested through 2022, which was a difficult year in the markets, along with the sharp fall from August 2023 to November 2023, and also the periods of volatility in 2024, which I mentioned earlier.

A good way to stay invested is to have a trusted adviser to talk you through the decision-making process before taking any action to reallocate or adjust the portfolio, and that is what our Client Advisers work hard to do with clients during periods of market volatility.

Looking Ahead to 2025

Why this is of importance is because, statistically, we are not likely to get another year of double-digit equity returns in 2025. Three years in a row of double-digit equity returns has rarely ever happened. We are likely to either get single-digit returns or less. What will be certain is that there will be volatility and uncertainty in the markets.

We have already started the year with some uncertainty. US Treasury yields are rising as inflation expectations are changing, for various reasons. The economic policy of the incoming administration, or a hotter-than-expected US economy, means that the Federal Reserve (Fed) might not cut rates as much as expected. Markets have been pricing in rate cuts for 2025, so any unexpected change to that view is likely to push down equity valuations. We have already seen the US markets start 2025 with a losing week.

Europe was one of the weaker performers of 2024; however, 2025 might spring some surprises. If the European Central Bank (ECB) cuts rates aggressively while the Fed is forced to keep rates high, there might be some relative value to be found in European equities.

Asia remains a region with many interesting opportunities. Chinese equities have compelling valuations, and any improvement in the economic outlook via new stimulus measures will benefit Chinese companies. Indian stocks have done well in the past few years, so it might mean that investors get more selective in that market, and the rally might not be as broad-based as before. If Japan continues to press on with corporate reforms, we might see the recent rally broaden out into smaller-sized companies more focused on the domestic economy.

However, it is hard to predict the future, and at Providend, we try not to. Forecasting is challenging, and few get it right. Instead, we look at ensuring that our portfolios remain diversified enough to benefit from different opportunities across the world. We continue to maintain allocations to Europe and China despite the underperformance compared to the US market in recent years. We are not adding to our US market allocation just because US stocks have done well recently. By staying suitably diversified, we enable our portfolios to capture the returns of whichever market will perform best in 2025, and that enables us to help our clients reach their wealth goals in a reliable manner.

Last but not least, we would like to take the chance to wish all our clients a very Happy Chinese New Year in the upcoming year of the Snake! Wishing all a Happy, Healthy, and Prosperous year ahead, and we look forward to the journey of navigating markets in 2025 together.

– Footnote –

[1] As of 30 Nov 2024.

For more related resources, check out:
1. Active Investing That Adds Value to the Client
2. Providend’s Money Wisdom Podcast S2E8: Our Pursuit of the Perfect Portfolio for Long-Term Investors
3. Long Term Risk Premiums and Expected Returns: Evidence From US and China

Download our Investment eBook titled “A More Reliable Way to Get Enough Investment Returns: Even During Times of Market Uncertainty” here.


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