Tuesday, 19 October 2004

Benchmarking Temasek's performance

The publication by the Singapore government investment holding company Temasek of its financial report last week elicited a number of comments regarding its performance.

The Straits Times reported the performance with the headline: "Temasek reports impressive returns". The Financial Times wrote: "Temasek unveils poor returns". Which provides a better description of Temasek's performance?

Tan Boon Kean, editor of The Edge Singapore, explained the divergent views:

Temasek should have set a relative benchmark in its annual review. People have approached the report with different benchmarks and measurements, some of which can be unfair to Temasek chiefly because they are not apple-with-apple comparisons... Returns are best measured not just as absolute figures...but also relative to its peers.

Tan used the following benchmarks: the "Dogs of the Dow" (a compilation of returns from the 10 highest dividend-yielding stocks from the Dow Jones Industrial Average), the Fidelity Magellan fund, Berkshire Hathaway and the S&P 500. The 10-year performances lined up as follows:

Temasek3%
Dogs of the Dow12.9%
Fidelity Magellan11.1%
Berkshire Hathaway20.3%
S&P 50013%

The above comparison puts Temasek in a bad light, and appears to justify the assessment given by The Financial Times.

However, Tan neglected to compare Temasek with what is obviously the most appropriate benchmark: the performance of the Singapore stock market. After all, most of Temasek's investments were in Singapore, in accordance with its charter at that time.

Over the 10-year period from 1994 to 2003, the Straits Times Index actually fell from 2,425.68 to 1,764.52. After adding dividends, I estimate that the market more or less broke even.

Seen in this light, Temasek's performance isn't too bad after all.

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