Tuesday, 24 December 2019
Written by Amirudin Hamid, Portfolio Manager of GAX MD
It’s that time again for MYTHEO’s monthly insights. The returns since inception were positive across all functional portfolios despite ups and downs in the month-to-month performances. Let’s see how each portfolio has performed.
The GROWTH portfolio rose by 1.91% in MYR
In November, the equities market extended the rally for the third month in a row. The US market recorded the most robust performance since June this year. Key equity indices, Dow Jones and Nasdaq composites, gained 3.7% and 4.5% respectively and hit new all-time highs on multiple occasions this month. It was of little surprise to see that Vanguard Value ETF (VTV), which invests in large-capitalization value stocks in the US, stood as a top performer across all functional portfolios with a gain of 3.43%.
Traditionally, when the US market does well, it often comes at the expense of smaller markets. However, this was not the case this month, as iShare MSCI Frontier 100 ETF (FM) was only a whisker below the US market with a 3.39% return. FM invests mainly in smaller emerging markets such as Kuwait, Vietnam, Morocco, Kenya, Romania, Nigeria and Sri Lanka.
The political situation in Hong Kong was the highlight of the month. iShare Hong Kong ETF (EWH) dropped by 1.02% as tensions escalated in Hong Kong. However, the win for pro-democracy in the HK election could ease the political unrest.
The INCOME portfolio dipped by -0.16% in MYR
There was little movement in the fixed income market in November. No major activities were seen by key central banks; however, both short-term and long-term yields did move a tad higher at the end of the month.
In general understanding, the bond yield is inversely correlated with the bond price. In that sense, a higher yield is detrimental to the income fund due to the knock-down impact on the pricing of the Fixed Income ETFs. MYTHEO had invested in 10 different ETFs for the income portfolio, but not all traded lower in November. The corporate bonds ETFs were holding up well on its own. All the corporate bond ETFs (iShares iBoxx $ High Yield Corporate Bond ETF – HYG, iShares iBoxx $ Investment Grade Corporate Bond ETF – LQD, SPDR Barclays Capital Short Term High Yield Bond ETF – SJNK and iShares Short-Term Corporate Bond ETF – IGSB) within the portfolio registered positive returns of 0.08% to 0.56%.
The INFLATION HEDGE portfolio eased by -0.25% in MYR
The performance of asset classes inside the Inflation Hedge portfolio was mixed in November. Stronger equities market performance signaled that investors were in the mood for riskier assets, which in turn made gold less attractive. As a result, the iShare Gold ETF (IAU) share price dropped by 3.33% and was the weakest ETF across all functional portfolios.
Higher bond yield was also to blame for the poor performance of Real Estate ETFs. The US Real Estate ETF (IYR) and SPDR Dow Jones International Real Estate ETF (RWX) both eased by 1.13% and 0.96%, respectively.
On a positive note, crude oil, mortgage real estate and agriculture ETFs contributed positively to fund performance. Oil prices ended the month on a higher note following a report that OPEC members are likely to extend production cuts until mid-2020 when they meet in December.
iShares Mortgage Real Estate Capped ETF (REM) did well on the expectation that US mortgage rates will stay stable until the year-end, following a 3-year low in August 2019. Agriculture ETF continues to benefit from the ongoing trade talk between the US and China. Invesco DB Agriculture ETF (DBA) rose by 1.31% after a report showed that the US exported 9.54 million tons of Soybeans in October, which was the highest monthly volume since December 2017.
Summary of Performance since inception in June to November 2019
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The chart above shows the functional portfolios' performance since MYTHEO’s inception in June 2019 to November 2019. Growth portfolio registered a return of 8.88%, Income portfolio was up by 3.72% and Inflation Hedge portfolio gained by 5.66%. The return for this period was positive across all functional portfolios despite the ups and downs in the month-to-month performance.
However, the actual portfolio return 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 portfolio, the actual portfolio return is (33.3% x 8.88%) + (33.3% x 3.72%) + (33.3% x 5.66%) = 6.09% over a six month period from early June to November 2019.
What’s Happening In The World Market?
During the month, President Trump endorsed two bills that “supported” the protesters in Hong Kong. The first bill is to authorise the sanctions on Chinese or HK officials involved in human rights abuses. Meanwhile, the second bill is to ban US companies from exporting crowd control armaments such as tear gas and rubber bullets to the Hong Kong police force. The introduction of the bills is untimely, considering that both the US and China are in active negotiations to secure a Phase 1 trade deal.
The US economy grew faster than initially expected in the third quarter. In the latest reports, the economic growth was revised upward to 2.1% from the initial reading of 1.9%. The revised number is also higher than of the 2% growth reported for the second quarter. Meanwhile, in China, the manufacturing sector saw a positive turnaround. The most-watched data by the economists, Caixin Manufacturing Purchasing Managers’ Index (PMI), jumped to 50.2 in November from 49.3 in October, beating the market expectation of 49.5.
In the UK, the stock market and British Pound (GBP) soared after Boris Johnson and his Conservative party achieved a landslide victory in the UK general election on December 3, 2019. After the election, the Conservative party will control 365 out of 650 seats in the parliament, and that should make it easier for the Prime Minister to get his Brexit plan ratified.
The US and China separately announced on 13 December 2019 that they have reached an agreement. With this agreement, the 15% tariff hike on US$150 billion import from China scheduled on 15 December had been suspended.
We continue to advocate investors to invest consistently. The deal announced on December 13, helps lift one of the primary concerns of investors. Eventhough, we are optimistic on this new deal, we advise investors not to drastically change their investment strategy. Hold on to your investment strategy as the tide could always change without any warning. Market noise can never disappear for good as other news will always come up.
The Brexit fear has been hitting hard on the UK stock market and British Pound. The Conservative party’s big win, which backs the Brexit might have put the UK market into further depression. This time though, we see an entirely different market reaction — UK stock markets and the Pound rallied. This is an example of how bad news can be re-interpreted into good news. While we need to be aware of possible implications of an event or news, we should avoid speculating on potential outcomes. Stay focused on long-term investment objectives.
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 dependant 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).