CIO pro-risk strategies reaps dividends


To navigate the volatility in 2H20, maintain a holistic asset allocation approach to investing
Chief Investment Office10 Jun 2020
Photo credit: AFP Photo


A case of collapsing risk assets and the temptation to go “risk off”. The high octane selldown in the S&P 500 Index was among the fastest in history – a move which caught global investors off guard. The level of extreme panic in markets persisted despite policymakers unleashing unprecedented fiscal and monetary easing.

This is understandable. After all, the swift economic lockdowns meant that commercial activities will come to a standstill while job losses mount. The dire situation was exacerbated by plunging energy prices and collapsing bond yields.

Faced with the prospects of an impending recession (and possibly deflation), it was indeed tempting for asset allocators to err on the side of caution and turn defensive on their strategies. But the DBS Chief Investment Office adopted a different view.

When the going gets tough, maintain composure. Making investment decisions based solely on lagging macro data is akin to driving a car using the rear-view mirror. But equities are forward-pricing assets with sufficiently strong market efficiency. So instead of over-emphasising on the severity of incoming macro data, we looked beyond the horizon and formulated our strategy based on the following core views:

  • This viral crisis is a transitory event that has no bearing on global technological and business innovation trends

  • Global policy support will mitigate economic headwinds; don’t fight the Federal Reserve

CIO pro-risk strategies paid off. We strongly called for investors to stay pro-risk during the peak of the crisis and our non-consensus strategy has paid off:


Note: Performance as of 8 June 2020

Too fast, too furious; time for a breather? Barring a severe second wave of infections, we believe the US equity market will grind higher on the re-opening of its economy and resumption of essential services. The net gains in May’s US nonfarm payroll, coupled with upbeat manufacturing data from China, suggest that this crisis may not be as severe as feared.

But having said that, we are cognisant that the S&P 500 has rallied 44.5% (as of 8 June’s close) since hitting a trough on 23 March. Given the intensity of this rebound, some consolidation is probable before the market resumes its uptrend again.

Do not attempt to “time the market”; adopt a holistic framework in investing. The sharp market correction in February to March underlines the importance of adopting a holistic approach to investing.

At DBS, we adopt the CIO Asset Allocation (CAA) Framework. Apart from fundamentals (e.g. macro data), we analyse valuation and momentum-related indicators to arrive at our decisions.

Figure 1: Riding the market rebound – pro-risk calls from the DBS Chief Investment Office

Source: Bloomberg, DBS

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