GIC has just released its annual report (July 13) and announced that it "over 20 years up to 31 March 2018, the GIC Portfolio’s annualised real rate of return was 3.4% per year".

20 years? Annualised real rate of return?

If you think that a 3.4% return means that for every hundred dollars GIC invested last year, it made $3.40, you're mistaken.

Let's help you first understand the 20-year portion. GIC does not report investment returns in yearly blocks. Instead it reports its performance as an annualised 20-year real return.

This visual makes it easier to understand:

For 2018, the 3.4% real rate of return measures investment performance between April 1998 and March 2018.

The next portion to note is the word "real". It is rate of interest that takes into account inflation. For GIC's case, it takes into account global inflation.

GIC's take on its performance

In its annual report, GIC shared that its returns, in recent years, tended to hover around the 4% level, and explained why numbers have dipped below 4% in the last two years:

"The high returns from the beginning of the tech bubble period in the late 1990s have dropped out of the 20-year window, while the post-tech bubble declines have remained in the window. We expect this effect to continue for a few more years, dampening the rolling 20-year return."

To put in context the "high returns" of the tech bubble, the NASDAQ Composite Index which tracked mostly technology stocks was at 2,521.34 points on Jan 1998, and by Dec 1998, it was 3,365.78 points. The returns were approximately 25%. GIC's 20-year annualised rate for 2018 would not include the growth of parts of 1998.

Moving forward

GIC said that it "maintains a cautious stance in view of a challenging environment characterised by high asset valuations, and rising uncertainty especially due to tightening monetary policy and escalating trade frictions."

When asked on what GIC sees as concerns moving forward, GIC Chief Executive Officer Lim Chow Kiat said, "Given that we are focusing on long term outcome, the most important thing for us is valuations."

In the press statement, Lim also said, "besides diversifying the total portfolio, we prepare for the uncertainty by maintaining price discipline and adopting a cautious stance. We also stand ready to take advantage of potential dislocations. In addition, we continue to work hard to identify and capture idiosyncratic opportunities, drawing on our long-term perspective and global network. We believe this is the best approach to investing in this challenging environment."

On shorter term concerns, Lim said, "that I would say has to be the escalating trade frictions." He added that GIC has to be alert to the disruptions trade frictions would cause to GIC's investments and at the same time he added that the development would also create opportunities and that GIC would be watching it daily.

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