Monday, 13 February 2023
Written by MYTHEO
In this monthly report, we will review MYTHEO’s portfolio performances based on the financial market developments in January 2023.
1. Growth Portfolio
MYTHEO’s Growth Portfolio was up 6.30% (+3.20% in MYR) in January 2023.
The portfolio has an overweight position in Asia (e.g South Korea, India and Hong Kong) and Emerging Markets (e.g Brazil and Mexico). The overweight positions are mostly driven by the relatively low recent realized risk of these markets, compared with their correlation to other markets. Our position in China remained about 3.80% since, although it has a diversifying benefit, the realized risk is relatively high.
The portfolio’s allocation to Invesco QQQ (about 15%) was a key contributor to the overall portfolio performance during the period, with stronger ringgit versus the U.S. dollar weighted slightly on the portfolio’s MYR returns.
Top 3 ETFs (Growth portfolio)
ISHARES MSCI MEXICO (EWW)
ISHARES MSCI SOUTH KOREA (EWY)
ISHARES CHINA LARGE-CAP ETF (FXI)
Bottom 3 ETFs (Growth portfolio)
ISHARES MSCI FRONTIER AND SELECT EM (FM)
VANGUARD VALUE ETF (VTV)
WISDOM TREE INDIA EARNINGS (EPI)
2. Income Portfolio
MYTHEO’s Income Portfolio recorded a return +2.70% (-0.44% in MYR) in January 2023.
The portfolio has an overweight position on US bonds, short duration corporate, high yield bonds and emerging market bonds. The overweight positions are mostly driven by the relatively high yields available in these markets, compared to their downside risk.
Meanwhile, the portfolio underweight Japan bonds, China bonds and long duration government bonds. The underweight positions are due to the relatively unattractive yields and large downside risk. The current average yield of the ETFs in the portfolio is around 6%. The biggest contributors to the yield are investment grade corporate bonds and high yield bonds.
The portfolio’s allocation to short duration bonds (about 40%) was a key contributor to the overall portfolio performance during the period.
Top 3 ETFs (Income portfolio)
ISHARES 20+ YEAR TREASURY BOND (TLT)
ISHARESIBOXX INVESTMENT GRADE CORPORATE BOND (LQD)
VANECKJP MORGAN EM LOCAL CURRENCY BOND (EMLC)
Bottom 3 ETFs (Income portfolio)
SPDR BLACKSTONE SENIOR LOAN (SRLN)
ISHARES 3-7 YEAR TREASURY BONDS (IEI)
ISHARES 1- 5 YEARS INVESTMENT GRADE CORPORATE BOND (IGSB)
3. Inflation Hedge Portfolio
MYTHEO’s Inflation Hedge Portfolio saw a positive return in January 2023, increased by 5.60% (+2.53% in MYR).
The current largest positions in this portfolio are U.S real estate and inflation linked bonds. The positions in US real estate, infrastructure and base metals positions are mostly driven by their ability to hedge long-run inflation. The positions in inflation-linked bonds and gold not only help to hedge against inflation but also provide a higher diversification benefit relative to other asset classes.
The portfolio’s allocation to U.S real asset and inflation-link bonds (about 60%) was the key contributor to the overall portfolio performance during the period.
Top 3 ETFs (Inflation hedge portfolio)
ISHARES MORTGAGE REAL ESTATE (REM)
INVESCO DB BASE METALS FUND (DBB)
ISHARES US REAL ESTATE ETF (IYR)
Bottom 3 ETFs (Inflation hedge portfolio)
ISHARES GLOBAL CLEAN ENERGY (ICLN)
ISHARESTIPS BOND ETF (TIP)
INVESCODB OIL FUND (DBO)
4. Global ESG Portfolio
MYTHEO’s Global ESG portfolio is up by 6.40% (+3.33% in MYR).
We are currently overweight in emerging market countries, while being underweight in the US. This is in line with the Growth portfolio allocation rationale, be it with an ESG flavour that should provide more stable performance. Subsequently, this 40% non-US ETF allocation was a key contributor to the overall portfolio performance during the period.
Top 3 ETFs (Global ESG portfolio)
ISHARES ESG AWARE MSCI EM (ESGE)
NUVEEN ESG LARGE-CAP GROWTH (NULG)
ISHARES ESG AWARE MSCI EAFE (ESGD)
Bottom 3 ETFs (Global ESG portfolio)
ISHARES ESG AWARE MSCI USA ETF (ESGU)
ISHARES MSCI USA ESG SELECT (SUSA)
NUVEEN ESG LARGE-CAP VALUE (NULV)
Chart 1: January 2023 - Portfolio Monthly Rate of Return in % (MYR)
Do you know how to calculate your actual monthly portfolio return?
As part of diversification, the actual portfolio returns to the investors are the combined weightage return from the allocation to each functional portfolio.
For example, if an investor allocates 33% of their investment in Growth, 32% in Income and 35% in Inflation Hedge, the actual monthly portfolio return is 1.79% [(33% x 3.20%) + (32% x -0.44%) + (35% x 2.50%)]
Global equities started 2023 on a positive note with the strongest January gain since 2019. China’s re-opening after dropping the zero-Covid policy in late December helped propel the advance. Signs that inflation is easing from its autumn highs in several major regions also supported sentiment, amid hopes central banks may be close to the peak of their rate-hiking cycle. Meanwhile, Emerging markets equities outperformed their developed counterparts on the back of a risk-on environment.
Global government bond yields fell in January (i.e. prices rose) on encouraging news on inflation – particularly out of the US. The month was light on central bank meetings, but the market began anticipating a slower pace of rate hikes by the Federal Open Market Committee (FOMC). The Bank of Canada hiked rates by 25 basis points (bps) but signaled a pause in its hiking cycle, while the Bank of Japan made no further adjustments to its yield curve control policy, despite a sharp rise in core inflation.
The S&P GSCI Index recorded a negative performance in January. Energy and livestock were the worst-performing components of the index, while industrial metals and precious metals achieved strong gains.
The strong stock market performance in January bodes well for the remainder of 2023, at least from a historical perspective. Since 1950, when the S&P 500 index is up in the month of January, it has finished the calendar year higher 86% of the time. Conversely, when the S&P 500 trades lower in January, it has ended the year in positive territory just 2.1% of the time.
MYTHEO’s algorithm conducted a rebalancing for 2023 functional portfolios. On equities, there is a larger exposure in Asia Equities and Emerging/Frontier Market Equities. Meanwhile, for fixed income, short-term bonds and corporate bonds have seen increased allocation. As for the Inflation Hedge portfolio, the algorithm increased weightage into real estate and treasury inflation-protected securities (TIPs).
Malaysia Ringgit appreciated against the US dollar in January by 3.11% to RM4.260 (as of 31st Jan 2023), compared to RM4.4400 on 31st Dec 2022. This has a slight negative impact on the performance of the portfolios in ringgit terms due to the depreciation of the US dollar.
According to the IMF, global economic growth was around 3.4% in 2022. It is predicted to slow slightly in 2023 to 2.9% before recovering to around 3% in 2024. Despite the strong gains in the stock market in January, we believe economic weakness in the months ahead supports the case to stay appropriately diversified. Markets may swing in the coming months as the economy transitions through some potential weakness, supporting the case to keep portfolios appropriately diversified and more closely aligned with your long-term investment strategy.
However, investors still concerned about the possibility of a U.S. recession in 2023 can also take a more defensive approach to investing and dial back their exposure to equities. Investors can earn 3.58%p.a.(net interest rate) on MYTHEO USD Cash Trust Portfolio, and those rates will likely continue to rise as the FOMC raises interest rates in coming months.
A digital investment platform like MYTHEO is here for you to achieve your long-term financial targets by having diversified investments in an easy and affordable way. Learn how MYTHEO can help you diversify your portfolio today, and how you can get started here.
Back to Main Blog
This material is subjected to MYTHEO's Notice and Disclaimer.