52.4% yield over 5 years, 272.7% over 2 decades


The GIC has just published its 2020/21 report and as always is very conservative in the way the data is presented. This is typical of a corporation that focuses on highlighting the lowest, actual (i.e., inflation-adjusted) figures.

As you can see in this chart, it seems pretty unimpressive:

GIC rate of return 2001 to 2021
Annual real 20-year GIC portfolio return rate since 2001 / Image credit: GIC

It seems that part of the overall policy is not to brag about the success of investing money held as a reserve, so as not to attract unwanted attention both from abroad and within the country (where many might begin to wonder why investments cannot be spent more generously among people. ).

GIC reported that its continued annual 20-year actual rate of return reached 4.3 percent, up from 2.7 percent recorded last year in the midst of a collapse caused by a pandemic.

It may not look extraordinary at all, but it needs to be unpacked a bit before we can compare the numbers to anything else.

Investments are usually valued according to their nominal rate of return, but, as I said, the GIC has a conservative approach in correcting its numbers due to inflation. Once we pull this adjustment, we can see what’s actually going on.

What a difference in age

Nominal annual rates of return are 8.8 percent for the current five-year period, 6.2 percent for 10 years, and 6.8 percent for the past 20 years.

gic nominal return
Image credit: GIC

This means that in the last five years there has been a cumulative return on investment 52.4%, 82.5 percent for the last decade and 272.7 percent over a 20-year period. Until that last figure, the GIC actually outperformed the U.S. stock market, which grew by about 220 percent between 2001 and 2021.

It is worth noting that these figures were not so high last year, when stock markets sank towards the end of the GIC’s fiscal year on March 31, reducing them to 21, 66 and 145.8 per cent, respectively.

Indirectly, it shows us another reason why the GIC insists on reporting annual, inflation-adjusted figures over longer periods of time rather than year-on-year. One year can have a huge impact even on cumulative long-term figures, especially if the annual report happens to come at a bear or bull market time.

This year, a strong recovery of stocks during 2020/21 was recorded in the twenty-year average. And the fall of the 2000/01 crash. After the dotcom balloon.

Whenever these numbers change, it would bring great news, but the reverse is also true.

Sharp falls due to unpredictable crises would encourage criticism, especially since most people do not understand exactly what they mean. It is therefore understandable why the GIC chooses to emphasize more conservative metrics.

As of today, GIC has halved its portfolio in the last five years, nearly doubled over ten and nearly tripled over twenty years.

Some people may begin to point out that stock markets have performed better – at least for the past five to ten years – but in reality, the GIC keeps its money safer.

Only up to 65 percent of its portfolio could be invested in stocks or other risky assets (in reality it is currently much less). The risk profile of these investments is more conservative than the volatile stock market, which can record large changes on an annual basis.

This is particularly important because the GIC indirectly manages money from the Central Insurance Fund (CPF), after the fund has exchanged them for special government-backed securities, the proceeds of which go to the GIC into profitable investments.

45 percent of the assets are held in bonds and cash, eight percent in solid real estate – ie. More than half are safely stored away from volatile stocks, while the entire portfolio still yields a commendable ROI.

a combination of gic assets
GIC’s asset set shows a conservative approach to risk-free investment – which still yielded strong results / Picture of merit: GIC
gic policy portfolio
GIC’s policy portfolio describes the approach to investing / Picture of merit: GIC

Despite all these limitations, GIC has almost as strong an impact as Temasek Holdings and, let’s not forget that over a longer period of 20 years it has actually surpassed the stock market.

This is not a bad feat for a state-owned corporation (which cannot risk as stock traders) during the period from the dotcom bubble and 9/11, to the 2008/09 financial meltdown. Until today’s COVID-19 pandemic.

While you may be reading about the rather small numbers reported in today’s news, they actually give much more than what seems at first glance.

Credit for featured images: Reuters

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