Performance Review: April 2021

Wednesday, 12 May 2021
Written by Amirudin Hamid, Portfolio Manager of GAX MD

US markets continued to ascend higher for the second consecutive month. In April 2021, the key US benchmarks, the S&P 500 Index and Nasdaq 100 Index, were up by 5.24% and 5.88%, respectively, which were the most significant monthly gains since November 2021. The S&P 500 Index surpassed 4,000 points and the Nasdaq 100 Index traded above 14,000 points for the first time in history.

The combination of positive economic data and strong earnings result by mega capitalization corporates was pivotal to the positive performance of the US market.

In March 2021, one of the most followed leading economic indicators in the US, the ISM non-manufacturing Index, reported an impressive reading of 63.7, which overwhelmingly beat the market expectations of 59. The reading was the highest for the service sector index since 1997. ISM non-manufacturing Index is crucial to the US economy because it is an indicator for the service sector in the US that accounts close to 80% of the Gross Domestic Product (GDP).

At the same time, retail sales in the US were also improving. The Commerce Department reported that retail sales grew by 9.8% in March 2021 from a year ago, which is much better than the expected gains polled by economists of 6.1%.

On top of that, corporate results by Microsoft and Amazon further boosted investors' confidence. Microsoft’s revenue jumped by 19%, and its net earnings per share rose by 45% in the first quarter of 2021. Meanwhile, Amazon reported that its net sales increased by 44% and operating income rose by 120%, over the same period.

MYTHEO's Growth portfolio and Inflation Hedge portfolio for the month were up by 1.62% and 3.46%, respectively. The Income portfolio for the month of April eased by 0.45%, which was hit by currency loss after the US Dollar (USD) depreciated against the Malaysian Ringgit (MYR).

Chart 1: Functional Portfolios' Performances for month of April 2021

Source: GAX MD Sdn Bhd, May 2021
Note: Past performance is not an indication of future performance

The GROWTH portfolio rose by 1.62%

The Growth portfolio closed the month higher in line with strong performances from technology stocks as well as US stocks.

After a few months of underperformance, technology-related stocks rose higher in April 2021, which were driven by strong sets of financial results by Microsoft and Amazon. Meanwhile, the US market maintained its upward trajectory after reports showed solid growth in the service sector and retail sales, indicating that the economy is on a recovery path.

In the MYTHEO holdings, assets with high exposure to technology, such as MSCI Taiwan ETF (EWT) and Invesco QQQ ETF (QQQ), spiked up by 6.45% and 4.72%, respectively. Exposures to the US market, such as Value Stocks (VTV) and ESG stocks (SUSA), were up by 2.14% and 3.64%, respectively.

Unfortunately, key markets in Asia were less vibrant. Japan's market (EWJ) shed of 2.84% was hampered by rising cases of COVID-19 in the country.

China large capitalizations stocks (FXI) dropped by 2.06% after the Chinese government widened the crackdown on internet companies. During the month, Chinese authorities initiated an investigation on the food delivery company Meituan for its monopolistic practice. 

The INCOME portfolio dipped by 0.45% in MYR

In April 2021, the US government bond yields dipped for the first time this year, which was supposed to be a period of increasing bond yields. The 10-year U.S. Treasury bond yielded 1.626% at the end of April 2021, which was slightly lower compared to 1.744% a month earlier.

As a result, most of the holdings in the Income portfolio ended the month with positive absolute returns in USD.

However, the weaker USD hindered what was supposed to be a more upbeat performance of investments inside the Income portfolio this month. The USD depreciated by 1.25% against the MYR. Due to this, shorter time to maturity and defensive assets had their gains in USD turn to losses in MYR after the conversion.

In MYR terms, treasury bonds with a maturity period of 5 to 10 years (VGIT), Treasury bonds with a maturity period 7 to 10 years (IEF) and corporate bonds (LQD) fell by 0.70%, 0.33% and 0.42%, respectively.

The INFLATION HEDGE portfolio jumped by 3.46% in MYR

The Inflation Hedge portfolio had a good month all around. Metal (DBB) was the strongest performing ETF across all three functional portfolios, having a gain of 7.01% anchored by the rally of the copper that spiked more than 11.54% in April 2021. Copper is the largest component of DBB and accounts for about 36.39% of the total value as of 31 March 2021. The other components inside DBB are aluminium and zinc that accounted for 33.13% and 30.48% of the total holdings, respectively.

On top of that, investors were betting that the economic recovery should bolster demand for real estate. As a result, the real estate market has been vibrant both inside and outside the US in MYTHEO holdings. US Real Estate (IYR) was up by 6.53% and International Real Estate (RWX) rose by 3.54%.  

None of the assets in the Inflation Hedge portfolio posted a negative return in April 2021, even after taking into account the USD to MYR currency conversion loss of 1.25%.

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 has an investment allocation of 40% in Growth, 40% in Income and 20% in Inflation Hedge, the actual portfolio return is (40% x 1.62%) + (40% x -0.45%) + (20% x 3.46%) = 1.16%

Our Thoughts

The highlight in April 2021 was the Inflation Hedge portfolio which rose by 3.46%. As you may know, MYTHEO's Inflation Hedge portfolio is unique because it is constructed using various real asset classes. Unlike many portfolios in the market today, MYTHEO’s Inflation Hedge portfolio invests in many types of commodities, precious metals, industrial metals, real estate and inflation hedge bonds.

In April 2021, the portfolio captured the upcycle rally in the copper and real estate sectors through investments in Metal ETF (DBB), US Real Estate ETF (IYR) and International Real Estate ETF (RWX).

Evidently, MYTHEO’s investment strategy to diversify across many asset classes is not just to minimize the overall risks of the portfolio but also to enable the portfolio to benefit from various cycles and sector rotations that move the financial market from time to time.

This material is subjected to MYTHEO's Notice and Disclaimer.

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