Thursday, 11 August 2022
Written by Sonia Tan, Portfolio Manager of GAX MD
In this monthly report, we will review MYTHEO’s portfolio performances based on the financial market developments in July 2022.
Watch the Performance Review below.
1. Growth Portfolio
MYTHEO’s Growth Portfolio jumped 6.99% (in MYR) in July 2022 as global equity markets rose strongly over the month. In the US, investors ignored the dire economic data and sent S&P 500 rising by 9.1% with the Tech-heavy Nasdaq rising more than 12% in July, their best monthly performance in nearly 2 years.
On the back of a four-decade high inflation rate of 9.1% in June (vs 8.6% in May), fears of recession have grown considerably as the Fed continues to hike interest rates aggressively to fight high inflation. Meanwhile, US Q2 gross domestic product (GDP) contracted by -0.9%, which marks two consecutive quarters of decline for U.S growth. While two consecutive quarters of negative growth is generally considered a recession, conditions in the economy are unique as the labour market continues to show signs of strength with healthy job growth and steady unemployment rate.
In Malaysia, the Ringgit depreciated against the US dollar in July by 1.65% to RM4.480 on 31st July 2022, compared to RM4.406 on 30th June 2022.
The top 3 of the most performing ETFs in the Growth portfolio were Invesco QQQ ETF (QQQ), iShares Russell Mid-Cap Growth (IWP) and iShares MSCI USA ESG Select ETF (SUSA). The allocation of these 3 ETFs is about 30% of the fund size which generated about 3% positive return to the growth portfolio.
Top 3 ETFs (Growth portfolio)
INVESCO QQQ ETF (QQQ)
ISHARES RUSSELL MID-CAP GROWTH (IWP)
ISHARES MSCI USA ESG SELECT ETF (SUSA)
Bottom 3 ETFs (Growth portfolio)
ISHARES CHINA LARGE-CAP (FXI)
ISHARES MSCI HONG KONG (EWH)
ISHARES MSCI FRONTIER AND SELECT EM (FM)
n response, we have conducted portfolio rebalancing with portfolio reallocation to the Growth portfolio;
INVESCO S&P 500 PURE GROWTH (RPG),
ISHARES RUSSELL 2000 VALUE (IWN),
ISHARES MSCI MEXICO (EWW),
ISHARES MSCI GERMANY (EWG)
ISHARES MSCI AUSTRALIA (EWA).
2. Income Portfolio
MYTHEO’s Income Portfolio recorded a positive return of 3.83% (In MYR) in July 2022. Bond markets continued to rally during the month of July, extending a bullish move which began in mid-June. The benchmark 10 Year US Treasury bond rose 3 points over the month, tightening yields from 3% down to 2.70%, indicating that the Federal Reserve may begin to slow the pace of rate rises over the rest of 2022.
The top 3 of the most performing ETFs in Income portfolio were iShares IBOXX High Yield Corporate Bond ETF (HYG), SPDR Bloomberg Short-Term High Yield Bond (SJNK) and iShares IBOXX Investment Grade Corporate Bond (LQD) The allocation of these 3 ETFs is about 30% of the fund size which generated about 2% positive return to the portfolio.
Top 3 ETFs (Income portfolio)
ISHARES IBOXX HIGH YIELD CORPORATE BOND(HYG)
SPDR BLOOMBERG SHORT-TERM HIGH YIELD BOND (SJNK)
ISHARES IBOXX INVESTMENT GRADE CORPORATE BOND (LQD)
Bottom 3 ETFs (Income portfolio)
VANECK JP MORGAN EM LOCAL CURRENCY BOND (EMLC)
ISHARES 1-5 YEARS INVESTMENT GRADE CORPORATE BOND (IGSB)
ISHARES 3-7 YEAR TREASURY BONDS (IEI)
3. Inflation Hedge Portfolio
MYTHEO’s Inflation Hedge Portfolio saw positive growth on July 22, edging higher by 6.21% (in MYR). Commodity prices were generally weaker in July in anticipation of an economic slowdown. Oil and Wheat prices fell by more than -8% whilst Copper was down -3.5%. Even Gold and Carbon Credits sold off, by -2.3% and -13%, respectively.
Meanwhile, US mortgage rates which tend to track 10-year US Treasury bonds have eased from its peak in late June. Likewise, signs of peak inflation expectation have helped Treasury Inflation Protected Securities (TIPS) to recover from its low in early July.
The top 3 of the most performing ETFs in the Inflation Hedge portfolio were iShares Global Clean Energy (ICLN), iShares Mortgage Real Estate (REM) and iShares US Real Estate (IYR). The allocation of these 3 ETFs is about 40% of the fund size which generated about 4% positive return to the portfolio.
Top 3 ETFs (Inflation hedge portfolio)
ISHARES GLOBAL CLEAN ENERGY (ICLN)
ISHARES MORTGAGE REAL ESTATE (REM)
ISHARES US REAL ESTATE (IYR)
Bottom 3 ETFs (Inflation hedge portfolio)
ISHARES GOLD TRUST (IAU)
INVESCO DB OIL (DBO)
INVESCO DB BASE METALS FUND (DBB)
4. Global ESG Portfolio
Similar to the Growth Portfolio, MYTHEO’s Global ESG portfolio jumped by 7.12% (in MYR).
The top 3 of the most performing ETFs in the Global ESG portfolio were Nuveen ESG Large-Cap Growth ETF (NULG), iShares MSCI USA ESG Select ETF and iShares ESG Aware MSCI USA ETF (ESGU). The allocation of these 3 ETFs is about 40% of the fund size which generated about 4% positive return to the portfolio.
Top 3 ETFs (Global ESG portfolio)
NUVEEN ESG LARGE-CAP GROWTH ETF (NULG)
ISHARES MSCI USA ESG SELECT ETF (SUSA)
ISHARES ESG AWARE MSCI USA ETF (ESGU)
Bottom 3 ETFs (Global ESG portfolio)
ISHARES ESG AWARE MSCI EM ETF (ESGE)
NUVEEN ESG LARGE-CAP VALUE ETF (NULV)
ISHARES ESG AWARE MSCI EAFE ETF (ESGD)
In response, we have conducted portfolio rebalancing with portfolio reallocation to the Global ESG portfolio;
Increased: ISHARESs ESG AWARE MSCI EM (ESGE)
Decreased: ISHARES ESG AWARE MSCI USA (ESGU)
Chart 1: July 2022 - Portfolio Cumulative 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 40% of their investment in Growth, 40% in Income and 20% in Inflation Hedge, the actual monthly portfolio return is 5.57% [(40% x 6.99%) + (40% x 3.83%) + (20% x 6.21%)]
Following the worst first half of the year for the S&P 500, and with investor sentiment reaching its lowest levels since 2008, the second half of 2022 has started with a sharp recovery in the prices of most risk assets. Investors are conscious of the fact that central banks, whilst anxious to look as if they are doing something about inflation, are actually very restricted as to the extent of monetary tightening that is possible without hurting the economy.
This being the case, the mood in financial markets is shifting away from worries about inflation to worries about growth due to the Fed’s aggressive policy. This has had a positive impact on market returns as growth worries have halted the rise in long-maturity bond yields, resulting in renewed optimism for long-duration risk assets which helps explain the sharp rally, especially in growth equities, over the past month. However, tighter monetary conditions, rising input costs and weakening demand all have a lagged effect on corporate profits, and investors need to be aware that earnings due to be reported in the second half of this year could be meaningfully lower than currently projected which might temper investor enthusiasm.
As July’s performance shows (refer to chart 1 above), diversified investments across asset classes, regions and industries can help the portfolio as a whole respond better under different market conditions, curb extreme fluctuations in asset value, and have a higher potential to deliver good returns over the long term.
We continue to emphasize that the most effective investment method is to invest on a long-term perspective combining growth, income and inflation hedge functional portfolios that make up our recommended portfolio. The diversification across the 3 MYTHEO functional portfolios can deliver better risk/return balance and smaller/shorter drawdowns over the long run.
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.
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