Performance Review: January 2020

Tuesday, 11 February 2020
Written by Amirudin Hamid, Portfolio Manager of GAX MD

Fear of the coronavirus epidemic dampened market sentiments in January. Investors were disposing riskier assets such as equities and stocks but aggressively loading up the defensive assets such as bonds and fixed income.

MYTHEO’s Growth and Inflation Hedge portfolio were negatively affected by the knee-jerk reaction in the financial market with a dip of 2.70% and 1.35% respectively. However, the Income portfolio had a positive performance of 1.42% driven by a rally in the bonds market.

Chart 1: Functional Portfolios’ Performances for the month of January 2020

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

The GROWTH portfolio dropped by 2.70% in MYR

The stock market was dampened by a negative swing in market sentiments in January as the coronavirus outbreak ravaged mainland China. Global stock markets fell into panic mode and were all traded lower due to aggressive selling pressure after the Chinese New Year holidays. In our portfolio, iShares MSCI Hong Kong ETF (EWH) was the worst performer due to its proximity to China, as it slumped by 5.68%. Meanwhile, iShares MSCI Singapore ETF (EWS) slumped by 5.02% merely because the country reported eighteen cases of infection, which was one the highest number of infection cases outside of China.

The INCOME portfolio rose by 1.42% in MYR

Bond yields were lower across all durations, where long-term yields had fallen much faster than short-term yields. Based on activities in the bonds market, we could see that investors were very cautious and highly selective in bond tradings. On one side, the defensive assets such as government bonds and High-Grade Corporate bonds were particularly strong. On the other side, riskier assets such as high-yielding and non-US Dollar bonds ended weaker.

Due to this, long-term government bonds in our holdings, iShares 20+ Year Treasury Bond ETF (TLT) gained by 7.88% and was the best performing ETF across all of MYTHEO’s functional portfolios. Similarly, the high-grade corporate bond ETF, iShares iBoxx Investment Grade Corporate Bond ETF (LQD), rose by 2.62% and was the second-best performing ETF in the Income portfolio.

Contrarywise, the non-USD Van Eck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) performed poorly with a 1.10% drop. High-yield bonds, including SPDR Barclays Capital Short Term High Yield Bond ETF (SJNK) and iShares iBoxx High Yield Corporate Bond ETF (HYG) also dropped but the losses were small, at 0.30% and 0.13% respectively.

The INFLATION HEDGE portfolio down by 1.35% in MYR

Commodities are always viewed as high risks assets by investors and is highly vulnerable to the Chinese demand. Hence, energy, metal and agriculture were all severely affected by the spread of the coronavirus. Oil prices collapsed after a report indicating that the Chinese oil demand has dropped by about three million barrels a day, or 20% of total consumption. As such, Invesco DB Oil ETF (DBO) was by far the worst-performing ETF inside MYTHEO’s portfolio after a massive 14.76% drop in a month.

Meanwhile, metal-related ETF, Invesco DB Base Metals ETFs (DBB) slumped by 5.46% and agriculture-related ETF, Invesco DB Agriculture ETF (DBA) was down by 5.33%.

Chart 2: Summary of Performance Since Inception - June to January 2020

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

Chart 2 shows the performance of the functional portfolios since inception in June 2019 to January 2020. Growth portfolio registered a positive return of 6.95%, Income portfolio was up by 3.94% and Inflation Hedge portfolio rose by 5.04%. The return for the period remained positive across all functional portfolios despite correction to riskier asset classes in January 2020.

It must be noted that, the actual portfolio returns to the investors is the combined weighted return from the allocation to each functional portfolio. For example, if an investor allocates the investment equally: 33.3% in Growth, 33.3% in Income and 33.3% in Inflation Hedge, the actual portfolio return is (33.3% x 9.91%) + (33.3% x 2.48%) + (33.3% x 6.47%) = 6.29% over a 7-month period from early June 2019 to January 2020.

What’s Happening In The World Market?

Fearing that markets might worsen as a result of the panic selling from the coronavirus outbreak, the Chinese government made a move to curb the unruly market behavior from affecting its stock market. It was reported that the China Securities Regulatory Commission (CSRC) had issued brokerage firms a directive to stop clients from selling using borrowed stocks or short selling on 3rd February 2020, which was the first day of market trading in Chinese stock exchanges after the long Chinese New Year holidays.

Also, in order to minimize the economic impact of the virus to the economy, China’s central bank announced on 3rd February 2020 to inject RMB1.2 trillion into the market via reverse repo operations to ensure sufficient liquidity supply. This is the largest single-day reverse repo operation that has ever been conducted in China. The move indicates that the Chinese government is serious in ensuring economic activities are not affected by the coronavirus.

Our Thoughts

A virus outbreak is something that we always wish did not happen. Virus outbreaks have heavy impacts on our daily lives and social activities. To ease the concern of our investors, we studied the impact of previous virus epidemics such as SARS, H1N1 and MERS outbreaks against our model portfolios.

In all previous outbreaks (SARS, H1N1 and MERS), there were no negative impacts to MYTHEO’s back-tested portfolios' performances. In all the situations of past virus outbreaks, the knee-jerk reaction was present, which led to a sharp sell-off in riskier asset classes. However, this sell-off lasted only for a few weeks. Thereafter, the situation surrounding the stock market and other riskier asset classes started to reverse. It was noted that this happened way before the virus outbreaks started tapering off.

We also want to highlight that MYTHEO portfolios did well during all those previous outbreaks. Feel free to read more on our special report - “How have past virus outbreaks impacted MYTHEO's portfolio performance?”. Our findings that are very clear and based on historical hard facts state that virus outbreaks have never really impacted MYTHEO’s portfolio performances. Instead, you might be amazed at how resilient the portfolio performances were during these crisis. This is mainly due to the well diversification of MYTHEO’s investment portfolio which comprises of wide asset classes that is spread across the globe. Therefore, it is wiser to stay invested and not act rashly towards market movements. If you are a long-term investor, you should consider topping-up your investments where you can gain some advantage through cheaper entry points.

Lastly, do take care of yourself from the coronavirus while MYTHEO takes care of your investment for you.

We track MYTHEO's performance since inception in June 2019.
Comments on the performance and operational status of each functional portfolio above are from our model portfolio throughout the month. MYTHEO customer’s personalized portfolio is derived from the combined weight of each portfolio. Therefore, the actual portfolio performance to the client is dependent on the weightage of each portfolio. The actual personalized return to each client can be calculated using this formula:
Return of Personalised portfolio = (Weightage in Growth portfolio x Return of Growth portfolio) + (Weightage in Income portfolio x Return of Income portfolio) + (Weightage in Growth portfolio x Return of Inflation Hedge portfolio).

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