Thursday, 07 November 2019
Written by Amirudin Hamid, Portfolio Manager of GAX MD
All MYTHEO functional portfolios delivered a solid return since its inception in June 2019. In the first five months, from June 2019 to October 2019, the Growth portfolio showed a positive return of 6.7%, Income portfolio rose by 3.9% and Inflation Hedge portfolio gained by 5.9%.
During the first few months, the portfolios rode on the strength of US markets and US Dollar. However, when the market tide turned in the month of October, MYTHEO’s portfolios’ returns were sustained by the investments in the non-US assets.
MYTHEO’s core portfolio strategy is to diversify across multiple countries and regions. In many ways, this kind of approach is designed to generate returns across different market environments effectively.
FUNCTIONAL PORTFOLIOS PERFORMANCE IN OCTOBER 2019
The GROWTH portfolio rose by 2.0% in MYR
The stock market had a weak start due to unfavourable market sentiments that spilled over from the previous month. Despite more flow of bad news during the month, the stock market had a decent rally in October 2019.
iShare Singapore ETF (EWS), iShare Hong Kong ETF (EWH) and iShare UK ETF (EWU) were the top three performers inside the growth portfolio.
It was easy to accept the rationale behind the rally in EWS. Singapore's economy is highly dependent on international trade, with annual trade valued at more than three times the size of its economy. Any potential resolution between the US and China is definitely a huge boost in the country’s economy.
It was a different story for EWH and EWU. Many investors understand that Hong Kong and the United Kingdom are still bogged down by internal struggles. Hong Kong’s government failed to take the anti-government protestors out of the street. While, the UK is on a relentless three-year battle to exit the European Union (EU).
Despite all these, both markets ticked up in October mostly on the expectation that the situation in both countries had already passed the worst points.
The INCOME portfolio rose by 0.2% in MYR
The Federal Reserve took further action to defend against the slower growth by lowering the interest rates for the third time this year by another 0.25% to the 1.50-1.75% range on 30 October 2019. The move was widely expected and created very little reaction in the bond market.
The income portfolio made a modest gain in October. The rally mostly concentrated on the non-USD asset classes as a weaker dollar eased the pressure in the emerging markets.
Within MYTHEO’s income fund, VanEck Vectors Emerging Markets Local Currency Bond ETF (EMLC) gained 3.2% in just one month.
EMLC is listed in the New York Stock Exchange, but the underlying assets consist of mostly local currency bonds issued in emerging countries such as the Latin American region, South Africa, Indonesia and the Philippines.
The INFLATION HEDGE portfolio rose by 1.0% in MYR
Inflation hedge portfolio remains consistent since the inception of MYTHEO. The portfolio added a further +1% in October to record five consecutive monthly gains.
Inflation hedge portfolio performance was consistent with the trend we saw in the income portfolio. The ETF that holds non-USD assets in underlying securities performed well in October. Within the inflation hedge portfolio, SPDR Dow Jones International Real Estate ETF (RWX) was the top gainer in October with a return of 3.5%.
To recap, RWX is the real estate ETF that owns assets outside of the United States mostly in Japan, Australia, United Kingdom, Singapore and Hong Kong.
Back to Main Blog
There was a constant flow of bad news in the headline in October. First of all, the International Monetary Fund (IMF) projected that the world would be at the slowest pace since Global Financial Crisis (GFC) in 2018 after cutting the global economic growth outlook to 3.0% and 3.4% for 2019 and 2020.
Over in Asia, China reported that the economy was growing at 6% in the third quarter (July to September 2019), which was the slowest pace in 26 years.
With vital economic headlines turning from bad to worse, naturally, we should expect adverse reactions by the market. By contrast, the stock market continued to remain buoyant. The S&P 500 Index, a key stock market benchmark in the US, climbed to a new all-time high on 30 October 2019.
In the MYTHEO growth portfolio, iShare ETF Hong Kong (EWH) and iShare ETF United Kingdom (EWU) were among the best performers in October. In which, it seems illogical to most investors considering the internal situations in both countries.
Anti-government protests hit hard on the Hong Kong economy. On 31 October 2019, it was confirmed that the country is in recession after its economic growth turned to a negative of 3.2% in the third quarter of 2019. Earlier this year, Hong Kong reported its economy contracted by 0.5% in the second quarter of 2019.
Meanwhile, the United Kingdom is still very much in a limbo; after three tough years, there is still no resolution on how to exit from the European Union, otherwise known as Brexit. The final impact of Brexit on the economy is still unknown.
As we can see, time and time again, present or past events matter the least to the stock market. The stock market will not wait for positive news to make its way up. On many occasions, the market started to rally long before negative news dissipates and good news starts coming in.
The stock market is always looking forward. Hence, don’t ‘time the market’ or wait for positive news headlines to start investing. As an alternative, invest consistently despite whatever market condition to reap the full benefits in the long run. Take advantage of our Regular Savings Plan to achieve this objective.