Singapore's sovereign-wealth fund has reduced its exposure to riskier assets against a backdrop of global economic imbalances and policy risks, including concern over whether President Donald Trump will follow through with promised economic overhauls.
GIC Pte. Ltd., which oversees more than $350 billion in assets and is the world's eighth-largest sovereign-wealth fund, said Mr. Trump's economic record was likely to be a significant risk factor for markets in coming years.
Mr. Trump has said he plans to implement a program of deregulation, corporate-tax overhauls and infrastructure spending, but his economic policy agenda has been held up by foreign-policy challenges and an investigation into alleged links between members of the president's campaign and suspected Russian meddling in the 2016 election.
However, despite this and other risk factors--including the U.K.'s planned exit from the European Union and the slow normalization of interest rates in the U.S.--market volatility remains low and valuations are high, GIC said at a briefing on its annual performance.
Accordingly, "there may be investor complacency in the market," said Lim Chow Kiat, GIC's chief executive. In a statement, he said that "at today's market valuations, the universe of high-return opportunities has shrunk significantly."
GIC, which manages Singapore's foreign-exchange reserves, said in its annual report the annualized nominal rate of return from its investments for the 20 years through March was 5.7%, consistent with the figures from last year
For the five years ended in March, GIC said it had an annualized nominal rate of return of 5.1%, compared with 3.7% in the five years ended in March 2016.
Its allocations to different asset classes, such as equities, bonds and private equity, remained little changed in the past year but over the past few years it has increased its holdings of cash and nominal bonds and reduced its exposure to more-volatile asset classes, such as some riskier equity markets.
GIC, which owns large stakes in Citigroup Inc. (C) and UBS Group AG (UBS), doesn't disclose the size of its assets under management. The fund, which says it takes a long-term view of investing, also doesn't publish single-year results.
The Sovereign Wealth Center estimates its assets at $353.6 billion.
A U.S.-led recovery from the 2008 global financial crisis remains fragile, GIC executives said in a briefing. Corporate profits in the U.S. peaked about two years ago and some interest-rate-sensitive sectors such as automobiles are already facing credit-related problems while rates are still relatively low, they said.
"In many senses that is not priced in by the markets--the U.S. market continues to be very close to its highs," said Jeffrey Jaensubhakij, GIC's chief investment officer. Mr. Trump's proposed economic revamps will need to "come into play" for the markets to continue to do well, he said.
The value of the holdings of many sovereign-wealth funds, including GIC, has risen since the global financial crisis as central banks have pursued cheap-money policies that buoyed asset prices. However, the funds are now warning of lower returns in the longer term, with bond yields low and equity markets expensive.
The U.S. remains GIC's biggest investment destination, accounting for 34% of its global allocation, while Japan accounts for 12% and the rest of Asia about 19%.
In May, the fund halved its stake in Swiss banking major UBS, which isn't included in GIC's latest figures. The fund, which has been one of UBS's biggest shareholders for much of the past decade, said it would cut its holding to 2.7% from 5.1%, adding it was "disappointed" with the investment, which resulted in a loss.
Mr. Lim said GIC was prepared for protracted uncertainty and low returns. The fund recognizes that to generate a good return, "we have to be prepared for periods of underperformance relative to the market indices, some even for a stretch of several years," he said.
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(END) Dow Jones Newswires
July 09, 2017 17:14 ET (21:14 GMT)