Temasek’s 24.5% return significantly underperformed the benchmark MSCI World Index
Last Saturday (July 17), a member of the public, Mr. Alfred Chan Hock Yuen, wrote to ST Forum to comment on the recent seemingly superb financial performance of Temasek Holdings (“ST Forumer calls for more public discourse on how Temasek has really been doing over the years’).
Temasek reported that it achieved a shareholder return of 24.5% last year, the highest since 2010. This was also reported by Straits Times (ST) last week (July 14). In fact, Temasek even released a full 2-page advertisement on The Straits Times announcing his success:
In its report, ST praised Temasek: “The return to shareholders of Singaporean investment firm Temasek has increased significantly in its last financial year.”
“Temasek’s portfolio was valued at a record $ 381 billion as of March 31, down from $ 306 billion a year earlier,” he added.
However, Mr. Alfred Chan was not impressed. He revealed: “A 24.5% one-year return looks impressive until one realizes that in the same one-year period up to March 31, the World Index MSCI has increased by about 45%. “
“Global markets have recovered dramatically over the past year and, as they say, a rising tide lifts all boats,” Chan added.
“What was also interesting was that the total return to Temasek shareholders for the 10 years up to the end of March of last year was 5% per year. During this same period, the MSCI World Index has increased on average by around 7% per year.
“How well has Temasek really performed over the years? Is it reasonable to expect Temasek to at least beat the relevant market indices over the long term? ” He asked. “I hope there can be more public discourse on these issues.”
The MSCI World index has risen again
the MSCI World Index is a market capitalization weighted index of 1,583 companies around the world. It is managed by MSCI, formerly Morgan Stanley Capital International, and is used as a common benchmark for global equity funds intended to represent a broad cross section of global markets.
The index comprises a collection of large and mid-cap stocks in 23 developed country markets and covers approximately 85% of the free float-adjusted market capitalization in each country. The index was launched in 1969 by Capital International to reflect international markets outside of the United States. When Morgan Stanley purchased the data license rights from Capital in 1986, it began using the acronym MSCI.
In fact, actual data of the MSCI World Index revealed a whopping 57.9% increase from April 1, 2020 to March 31, 2021 during the same benchmark period as Temasek’s:
- April 1, 2020 – 1781.27
- March 31, 2021 – 2811.70
That is, if we bought in one of these exchange-traded funds (ETFs) that track the MSCI World Index, one could achieve a similar gain in roughly the same order of magnitude, since ETFs simply copy a market index one to one and can be traded at any time on the stock exchange as one more stock. However, due to the various management fees and expenses, the ETF gain would not be exactly the same as the Index gain.
As can be seen in one of the popular ETFs of the MSCI World Index managed by HSBC, the one-year return over the same period was 50%. In other words, if one had bought the HSBC ETF on April 1 of last year and sold on March 31 of this year, one would have achieved a return of 50%, double that of Temasek:
Few fund managers could beat the market
In investing, the expression “to beat the market” means to obtain a return on investment higher than that of a stock index. In the case of international investors, their performance is generally indexed to the famous MSCI world index. Many have tried, but few can succeed.
According to a Financial Times article, a study found that less than a quarter of active equity funds outperformed benchmarks in 2018. In the Equity World segment, which included analysis of 700 global funds, only 22% beat the MSCI index World in 2018. The study was based on the outperformance ratio, which measured by peer group the proportion of actively managed funds that exceeded their respective benchmarks during the period analyzed.
A Forbe’s article released in September of last year also said that it is difficult to beat the market. Forbe cited a Vanguard study which found that only 18% of active fund managers beat their benchmarks over a 15-year period.
Whether Temasek can beat the MSCI World Index over the long term remains to be seen, but it is safe to say that if Temasek invested all of his money in MSCI World Index ETFs in the past fiscal year, he would have achieved double his. declared yield. by 24.5 percent, even after accounting for ETF management fees and other expenses.