For FY2021 which ended 31 March 2021, Temasek Holdings announced that it has achieved a total shareholder return of 24.5% in a year marked by the COVID-19 pandemic. Its Net Portfolio Value (NPV) also hit a record of S$381 billion, an increase of S$75 billion. While this is an astounding return, we also have to be aware that the financial year of 2021 started after 31 March 2020, which was near the bottom of the stock market performance last year for most equity markets.
Of Singapore’s sovereign wealth funds, Temasek takes the most active approach to investing. As Temasek is investing for the future of Singapore, their approach can be quite different from even fund managers who actively manage mutual funds.
Here are 5 things Singapore investors can learn from Temasek’s investment strategy.
#1 Temasek Is A Generational Investor
While most investment advice does remind us to invest for the long term, 10 to 20 years are typically long term investment horizons for most people. However, to Temasek, 10 to 20 years are counted as short to mid-term investment horizons. Temasek’s investment horizon may be counted by generations, as their returns need to benefit future generations of Singaporeans.
While their FY2021 total shareholder return was 24.5%, this was likely driven by the fact that the financial year began near the bottom of the stock market’s performance and the subsequent recovery. Where Temasek really shines is when we look at the total shareholder return over the long run. Over the last 30 years and longer, Temasek’s long term total shareholder return actually averaged an impressive 13 to 14%.
This long-term perspective enables Temasek to ride out short-term volatility as well as the ability to invest in structural growth trends that take a long time to come to fruition. This long horizon shapes Temasek’s investment strategy as we will discuss later.
#2 Temasek Actively Invests And Divests
Temasek made a record amount of active investment and divestment in FY2021 with $49 billion invested and $39 billion divested. While FY2021 is a record year for investments and divestments, their track record also shows a history of active investments and divestments.
What most beginner investors may not realise is that active investing requires knowledge and expertise to maintain an investment edge. While most investors put in much effort in learning and finding out when to enter a stock, most do not put as much thought into divestment. However, frequent investments and divestments may be necessary to maintain the overall portfolio strategic direction. This could include divesting for various reasons such as to realise capital gains, manage their asset allocation and at times, adjust in accordance to their strategic direction.
#3 Temasek Actively Invests With Strategic Goals
As an active institutional investor, Temasek can also influence its investee companies towards certain goals. One of these goals is “seeding social capital to catalyse a more inclusive and resilient world.” For example, to complement national efforts, Temasek encouraged DÇrypt, one of their portfolio companies to develop the BluePass automatic contract tracing device. Tychan, another investee company, developed a candidate antibody for COVID-19 that is in current Phase 3 trials. These are developments that Temasek as an active investor can influence.
While retail investors may not have the financial clout of Temasek to influence individual companies, we can also invest with strategic goals in mind. This could be in the form of sustainability or ESG investing.
#4 Sustainability Is One Of Temasek’s Key Investment Themes
Temasek has identified 4 key structural trends that would guide their investment activities and shape their long term portfolio construction: Digitalisation, Sustainable Living, Future of Consumption and Longer Lifespans.
Guided with these investment themes, Temasek invests in companies that are developing innovative solutions to address global challenges or growing needs, as well as emerging threats and relevant transformational opportunities arising from these structural trends.
For example, Financial Services and Telecommunications, Media & Technology remained the top two largest sectors in Temasek’s portfolio. However, over the years, the invested companies have changed due to the focus on digitalization. For Financial Services, the portfolio has moved from focusing on banks to include fintech, insurance and payments. Temasek is adapting to these shifts by investing in FNZ, a UK-based wealth management services platform and Nium, a Singapore start-up that facilitates global digital payments and card issuance.
Temasek also invested in companies that provide sustainable solutions that facilitate the move towards a low carbon and more sustainable economy. They invested in Rivulis, an Israel-headquartered company providing water-saving technology solutions to farmers worldwide; and Solugen, a US-based speciality chemicals manufacturing platform that aims to decarbonise the chemicals industry.
#5 China Forms The Largest Geographical Component of Temasek’s Investment
Currently, China forms the largest geographical component (27%) of Temasek’s investments, followed by Singapore at 24%. This includes their investee companies’ underlying asset exposure to China, on top of direct investments into Chinese companies.
While Temasek acknowledges the possibly regulatory risks of investing in China, including their recent clampdown on Didi which Temasek invested in, their long term investment horizon allows Temasek to ride through any short-term risks. Temasek remains positive about the growth potential of China. One of the ways they take to minimise the risks (on top of their existing risk assessments) is to focus on Chinese companies that are driven by domestic growth and consumption.
For retail investors, this could be an additional vote of confidence to include some exposure to China in our own investment portfolios.
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