In its financial year 2019, Temasek Holdings announced that it ended with a net portfolio value of $313 billion, up about $5 billion from last year. It’s one-year Total Shareholder Returns was 1.49%, which was lower than last year’s one-year Total Shareholder Returns of 12%.
Despite a relatively subdued year, we can learn a great deal from the way Temasek Holdings’ has conducted it investments. Here are 5 key takeaways we got from listening to the management at its annual review.
# 1 Focusing On The Long Term
Temasek Holdings’s shareholder is the Ministry of Finance (MOF), which manages the Singapore’s national reserves. Clearly, the government does not have need for cash in the short-term, as just in May 2019, the Monetary Authority of Singapore (MAS) announced that it will be transferring $45 billion to GIC.
This means, rather than worry about a 1.49% Total Shareholder Return Temasek Holdings delivered in the past year, the government wants to invest its funds for the long-term and dividends – as the largest contributor of Singapore’s budget is currently the Net Investment Returns Contribution (NIRC), which is made up of current and expected long-term returns.
Similarly, when we invest our money, we similar need to understand what we want out of it. Do we want cashflow in the form of dividends or perhaps growth in the form of appreciation in the long-term?
Its long-term Total Shareholder Returns figures were much more impressive, returning 15% in the past 40 years and 9% in the past 10 years.
# 2 Investing In Regions It Believes Will Drive Growth
At the review, Temasek Holdings’ management team agreed that it was underweight on US and Europe, which was primarily why it may have under-performed global indexes. The previous year had seen US stocks, in particular, break all-time highs.
Currently, Singapore and China comprises the largest exposure in the portfolio, each accounting for 26% of its exposure. Next largest was North America (15%), Asia ex Singapore and China (14%) and Europe (10%).
Reiterated by the management team, Temasek Holdings sees Asia as the main growth driver in the long-term. Accordingly, two-thirds of its entire portfolio is invested in the region.
While Temasek Holdings’ management team was quick to note that its exposure levels to the US and Europe actually rose from last year, the chart is a clear indicator of where Temasek Holdings’ expect returns to be best in the long-term.
Similarly, retail investors can choose to mimic Temasek Holdings’ stance to have their own stance as to where the highest growth will take place in the long term.
# 3 Concentrating On Growth Sectors
During the year, Temasek Holdings concentrated its investments in non-bank financial services, such as Ant Financial, which operates Alibaba’s payments and FinTech platform in China, and Global Payments, a global payment solutions provider.
Technology is also another enabler that Temasek Holdings believes in. This led to investments in DoorDash, an online food delivery marketplace; OlaCabs, an online ride-hailing company in India; and Bionexo, a Brazilian-based healthcare e-commerce company.
Life Sciences formed one of the two sectors that Temasek actually grew it exposure to, investing in Aerogen, a global medical device and therapeutics company in Ireland; Hangzhou Tigermed, a clinical contract research organisation supporting development of innovative drugs in China and Orchard Therapeutics, a UK-based commercial stage biopharma global leader in gene therapy for rare diseases.
As retail investors, we should not be afraid to concentrate our investments in sectors that believe in or understand better. For many of us, this may be real estate or consumer businesses that we can actually see. We could also use our expertise in our area of work to guide us in our investment decisions.
# 4 Divestments Exceeded Investments
For a regular investment firm to make the most returns, it needs its funds to be entirely invested. This is not the case with Temasek Holdings. In fact, the investment firm has divested more than it has invested in two of the past three years.
When asked about it, the management team commented that the growing uncertainty in the markets on the back of the trade war and Brexit, as well as the fact that we may be headed towards a late cycle recession. This, coupled with high valuations, has played a role in this stance.
As investors, we should note that we don’t have to be all-in all the time. De-risking our portfolio by selling off some of our investments is a strategy we can use when faced with greater uncertainty could work out.
This also gives us ample reserves to plough into the market should we see a good opportunity or if the downturn that we were afraid of occurs.
# 5 Investing In Sustainability
Besides being an active investor, Temasek Holdings also prides itself on being a forward-looking institution and a trusted steward. This means investing in sustainable businesses.
To this end, Temasek Holdings has invested into Neoen, an international solar, wind and energy storage company; Pivot Bio, a synthetic biology company producing nitrogen-fixing microbes that reduce the need for chemical fertilisers; and indoor farm operators like Sustenir and Bowery Farming, that grow and deliver high quality fresh clean produce in urban spaces using less resources.
It has also invested in healthcare companies, including BeiGene, a China-based company specialising in developing novel therapies for cancer; Denali, a US-based company focusing in therapies for neurodegenerative diseases; Iora Health, providing value-based healthcare services to seniors; and Sheares Healthcare, a pan-Asian healthcare series platform headquartered in Singapore.
While the companies mentioned above are private companies that we may not be able to access, one way retail investors can go about investing in sustainable companies is by looking at the SGX ESG indices. They give us a good idea on which listed companies are at the forefront of this trend.
Globally, we can also look towards the MSCI ESG indices for companies listed outside of Singapore.
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