Performance Review: A Month Of Reversal

Thursday, 10 October 2019
Written by Amirudin Hamid, Portfolio Manager of GAX MD

Investors' emotions were tested again in September 2019. Let’s review how our functional portfolios performed during that month.


The GROWTH portfolio rose by 2.75% in MYR

The growth portfolio had a strong recovery in September. Earlier in the month, the global equity market was calm despite some negative headlines of liquidity crunch in the US Repurchase Agreement (Repo) market and the drone attack on Saudi Arabia’s oil facilities.

However, this resistance came undone right at the end of the month after the impeachment investigation of President Trump was announced. Later, more anxiety unfolded after Bloomberg reported that the Trump administration is looking to stop investment flows into China. The measures would include the delisting of Chinese companies from US stock exchanges.

Despite a market sell-off at the end of the month, the global equity market performance was still broadly positive across the board. Asset classes that performed badly in August were the ones that recovered the strongest. Japan, US Small Cap, UK and India markets all made a substantial turnaround with at least +2.5% gains in September.


The INCOME portfolio eased by 0.62% in MYR

The fixed income market looked subdued throughout the month. After a ferocious decline in bond yields to a new all-time low in August, the bond yield recovered in September, which also made the fixed income ETFs less attractive.

The Federal Reserve did cut interest rates by another 0.25%, but the market already anticipated the move. What bothers investors more is the uncertainty over the future direction of interest rates. Even though, many investors hope for a more aggressive future rate cut, this may not even be materialised as Federal Reserve committee members are increasingly divided, with three out of ten officials voting against the policy decisions in September.


The INFLATION HEDGE portfolio rose by 0.60% in MYR

Inflation Hedge portfolio recorded a positive return for four straight months despite both Gold and Crude Oil being down. iShare Gold Trust ETF (IAU) had a strong rally last month but lost its glitter in September, on the back of better stock market performance, rising bond yield and a stronger US Dollar.

Crude Oil's price had a strong rally after the drone attack on Saudi’s oil facilities on September 14. However, after the Saudi managed to restore oil production capacity to normal, the crude price made a quick reverse back to the pre-attack level.

Positive performance of the Inflation Hedge portfolio mostly came from iShare Mortgage Real Estate ETFs (REM) and Invesco DB Agriculture ETF (DBA), which gained by 6.1% and 5.4% respectively. REM was among the top losers last month but fully recouped all the losses after bond yield recovered in September. Meanwhile, DBA ended higher after China excluded soybean from additional tariffs.

Source: GAX MD Sdn Bhd
Note: Past performance is not an indication of future performance


The spike of yield in the Repo market had put investors on high alert, but it did not last more than a few days due to quick intervention by the Federal Reserve.

Initially, the drone attack on Saudi facilities had caused crude oil prices to skyrocket and gain by more than 10% intra-day. However, the faster-than-expected recovery by the Saudi government caused the price to reverse almost instantly. The oil-related ETF, Invesco Oil ETF (DBO) was down by 0.3% in September.

The asset class price performance in September was the complete opposite of the previous month (August). For example, iShare Gold ETF (IAU) was a top gainer in August but demoted to the top losers in September.

In contrast, the Real Estate Mortgage ETF (REM) was amongst the biggest losers with a 4.2% loss in August but made a complete turnaround with a gain of 6.1%. Investors who stayed invested in REM after an initial loss is actually in profit over the two months.

The performance of the market over the past two months provides us a good lesson. In making investment decisions, one should focus on long-term objectives and avoid making changes based on news flow. It is essential to step back from the short-term noise of the markets, taking a disciplined approach and focus on investment returns over the very long term. As illustrated by the returns on MYTHEO functional portfolios, diversification across asset classes is very good for reducing risks.

As you can see in September, market sentiment can quickly turn 180-degrees in a short period. Successful investing requires you to look past the ugly headlines — happy investing.

Source: GAX MD Sdn Bhd
Note: Past performance is not an indication of future performance

The chart above shows the performance of all functional portfolios since MYTHEO’s inception in June 2019 to Sept 2019. Inflation Hedge portfolio delivered the highest performance with 4.9% return followed by Growth portfolio which gained 4.6%. Meanwhile, the income portfolio was up by 3.6% over the same period.

*Comments on the performance and operational status of each functional portfolio above are from our model portfolio throughout the month. MYTHEO customer’s portfolio performance is calculated free of transaction fees after deducting management fees. Also, depending on the deposits, withdrawals and asset balance during the month, the portfolio will differ from the model portfolio, so the performance results will not be the same.

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