Temasek Holdings’ 2015 Review: The Highlights

Temasek Holdings, the sovereign wealth fund of Singapore, announced its annual review yesterday. For those who are unfamiliar, Temasek Holdings is one of the largest shareholders of many Singapore-listed companies; this alone might make the fund’s review worth noting for stock market investors in Singapore.

Some of the largest listed companies in Singapore, such as DBS Group Holdings Ltd (SGX: D05)Singapore Telecommunications Limited (SGX: Z74)Starhub Ltd (SGX: CC3)Keppel Corporation Limited (SGX: BN4)Sembcorp Industries Limited  (SGX: U96), and Olam International Ltd (SGX: O32) all count Temasek Holdings as one of their major shareholders. You can read more about Temasek Holdings in here and here.

In its fiscal year ended 31 March 2015, Temasek Holdings recorded a total shareholder return of 19.2%. That is an impressive result given the size of the fund (Temasek Holdings’ portfolio stands at S$266 billion as of 31 March 2015). With the latest reading of its returns, the sovereign wealth fund’s total shareholder return since inception in 1974 clocks in at an annual rate of 16%.

Over the past decade, the fund has been successfully diversifying its asset base away from Singapore. In 2005, 49% of its S$103 billion portfolio (some S$50.5 billion) was invested in Singapore; today, ‘only’ 28% of its S$266 billion in assets (S$74.5 billion) come from our shores.

Major updates for the year

During the year, a major divestment activity from Temasek Holdings had been the sale of 10% of its stake in Chinese e-commerce juggernaut Alibaba Group when it listed its shares in September 2014.

But even with the sale of Alibaba shares, Temasek Holdings continues to see promise in Asia given that the largest share of its new investments during the fiscal year were in the continent.

Some examples of the investments that Temasek Holdings had made during the year include a stake in A.S. Watson (a company with ties to Hong Kong billionaire Li Ka Shing and which runs the international health and beauty retailer Watsons) and even more shares of commodities trader Olam (Temasek Holdings had been a long-time shareholder of Olam, but decided to up its stake in the firm during the year).

At the current moment, Temasek Holdings’ investments are concentrated mainly in Singapore (28%), China (27%) and Australia (9%).

In terms of a sector breakdown, the sovereign wealth fund has a large exposure to financial services companies (28%) through its investment in banks such as DBS. The telecommunications, media and technology sector makes about 24% of Temasek Holdings’ assets, while 17% is invested in transportation and industrials.

As a sovereign wealth fund, Temasek invests with a very long term focus – that is why many of its investments, such as Keppel Corp, DBS Group Holdings and Singapore Airlines, have been in its portfolio since inception more than 30 years ago.

Temasek Holdings’ Chairman, Lim Boon Heng, also wrote about the fund’s outlook on the global economy in the fund’s annual review:

“We are cautiously optimistic on the outlook for the next few years. The US economic recovery remains on track, if at times uneven. China is pursuing a more sustainable growth path, and has the means and tools to address credit stresses in its financial system.

This macroeconomic backdrop, combined with easy monetary policy by most central banks, caused a rally in major equity markets, with China a clear outperformer. As a result, valuations, especially in more mature markets, are well above historical averages.

The sharp correction in energy prices during the year surprised most market participants. In the short term, this has increased real income for consumers and reduced costs for businesses. While investments in some energy projects have been scaled back, we do not anticipate a sharp rebound in energy prices in the near term.

Foolish Summary

We tend to look at investors like Warren Buffett, Peter Lynch, Sir John Templeton, and more as shining examples of the merits of long-term investing. But, given Temasek Holdings’ 16% compounded annual returns since its inception in 1974, we wouldn’t need to look abroad to see a great example of why long-term investing can work.

If you like what you've seen and want more analyses, insights, and important updates about Singapore's stock market, sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Keppel Corporation.