Wednesday, 10 June 2020
Written by Amirudin Hamid, Portfolio Manager of GAX MD
The financial market continues trending upward for a second month. In the past year, the US market and US Dollar assets have been pivotal to MYTHEO’s performance. However, it went the other way around in May, as international assets and non-USD exposures performed much better.
All three MYTHEO functional portfolios had positive absolute returns in May. The Growth portfolio rose by 4.72% while the Income and Inflation Hedge portfolios increased by 2.95% and 4.51% respectively.
Chart 1: Functional Portfolios' Performances for the month of May 2020
Source: GAX MD Sdn Bhd
Note: Past performance is not an indication of future performance
The GROWTH portfolio rose by 4.72% in MYR
The equity markets extended their gains in May after receving better than expected economic data from the US. Moreover, investors were convinced that the global economy will pick up after more countries affected by Covid-19 had begun to lift the lockdowns.
All investments inside the growth portfolio were positive, except equity shares in Singapore (EWS) and Hong Kong (EWH). EWS experienced a small loss of 0.50%, attributed mostly to a sharp drop of one of its underlying, Singapore Exchange (SGX), which lost the licensing contract of MSCI index futures and options to the Hong Kong Stock Exchange (HKSE).
Politics had hit Hong Kong once again. EWH dropped by 5.23% after Beijing revealed a plan to impose a new security law for Hong Kong. Investors were concerned that this could trigger a new round of street protests and widen the rift between the US and China. Fortunately, the concern was short-lived. Right at the end of the month, the Hong Kong shares rebounded, and some of the earlier losses were reversed after President Trump announced that there will be no changes to the phase 1 trade deal, nor new tariffs imposed on China.
There were plenty of positive movements in MYTHEO’s Growth portfolio. Firstly, Brazilian shares (EWZ), which was activated by the algorithm into the portfolio in early May, made an immediate positive impact after surging by 11.35%. EWZ is heavy on commodities such as crude oil and metal, which rallied strongly during the month. Brazil was picked by the algorithm primarily because the market had been trading at cheap valuation in line with low commodity prices. Thus, any pick up in commodity prices is a boon to the market.
Also, Japan shares (EWJ) ticked up by 8.15% after investors predicted that the export-oriented country will benefit from the lifting of lockdowns in major economies.
The INCOME portfolio rose 2.95% in MYR
All assets inside the Income portfolio closed higher in May. However, the non-US Dollar and High Yield bonds rose faster than the defensive assets such as Government bonds and Investment Grade bonds.
The Emerging Market bond that is traded in respective local currencies (EMLC) jumped by 7.81%, which was supported by firmer commodity prices. In addition, the appreciation of emerging market currencies against the US Dollar had also boosted the performance of the ETF.
In the rising market, investors tend to chase after high risk asset classes in search for higher returns. As such, the high risk bonds in MYTHEO’s holdings, short-term High Yield bond (SJNK) rose by 3.77%.
The INFLATION HEDGE portfolio up by 4.51% in MYR
Crude oil price has been weak throughout the year but rebounded strongly in May. As a result, the Crude Oil ETF (DBO) jumped by 18.54%, which signaled that the worst might be over and oil demand is set to normalize after US, Europe, and Japan re-opened their economies. Other commodity ETFs did well too, such as Metal (DBB) and Gold (IAU) ETFs, which rose by 5.24% and 3.66% respectively.
The combination of higher commodity prices and weakening US Dollar was the key reason that the international assets outperformed against US-based assets in the Growth and Income Portfolio. It was no exception in the Inflation Hedge portfolio.
With a global exposure in MYTHEO’s Inflation Hedge portfolio, iShares Global Infrastructure ETF (IGF) was up by 7.12%. IGF invests in public listed companies globally, of which more than 70% of its underlying exposure consists of infrastructure companies operated outside of the United States.
Chart 2: Summary of Performance YTD as at 31 May 2020
Source: GAX MD Sdn Bhd
Note: Past performance is not an indication of future performance
Chart 2 above shows the performance of the functional portfolios since the beginning of 2020. Growth portfolio declined by 14.42%, Income portfolio was up by 8.33% and Inflation Hedge portfolio dropped by 9.75%.
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 -14.42%) + (33.3% x 8.33%) + (33.3% x -9.75%) = -5.28% over a five-month period from January to May 2020.What's Happening In The World Market?
Many investors remain skeptical, but the month of May turned out to be a decent one. The Dow Jones Industrial Average Index (DJIA) traded above the critical 25,000 level while the S&P 500 Index touched the 3,000 mark, the highest level since March 2020.
Investors welcomed the news that many countries started to ease their lockdowns and put more effort in re-starting the economy. Also, the market reacted positively to the comments made by the Reserve Chairman, Jerome Powell on 18 May 2020.
The forward-looking comments by Powell have instilled more confidence in the market. Investors started ignoring bad economic data and lingering recessions risks. Instead, investors have been bidding up global stocks higher following the expectations that the US and global economy will have a strong recovery as early as the fourth quarter this year.
Our Thoughts
Before the pandemic, the US market was the key driver to the performance of MYTHEO’s portfolio. During this period, the US markets were outperforming the international markets. In May, the US markets continued to do well, however the international markets did much better.
When an investor looks into the list of MYTHEO’s investments, he or she might think that MYTHEO solely invests in US-based companies and assets since all ETFs are listed in the US and traded in US Dollars. However, this is not the case. Upon digging down further into the underlying holdings of the ETFs, the assets have exposure to more than 80 countries.
MYTHEO's functional portfolios’ performance in May is a perfect example. Shares in Brazil (EWZ) and Japan (EWJ) were the two assets that rose the fastest inside the Growth portfolio. While, in the Income portfolio, the emerging market bond traded in local currency (EMLC) was a head and shoulder above the next best. Similarly, Crude Oil (DBO) and Global Infrastructure (IGF) beat Gold (IAU) and US Inflation Hedge bond (TIP) as the top performing assets in the Inflation Hedge portfolio.
This is what differentiates MYTHEO from other investment products available in the market. MYTHEO is an all-weather investment product that focuses on investment diversification across more than 80 countries and a wide range of asset classes from equity, bond, real estate and commodity. Therefore, MYTHEO optimizes risks well to achieve long-term results without being highly dependent on the performance of any single market or asset class. This investment strategy has worked well especially during a period of market uncertainties and volatilities.
The best part is that investors can own these investments bundled together with an initial capital of as low as RM100. It is prudent for an investor not to time the market for entry or exit point. For those who exited at the bottom on 23 March, they would have missed the recovery on the following days. For those fortunate ones who went in at the lowest peak on that same day, they will be sitting on a large investment gain. But then again, who has that crystal ball to predict the market movements? Hence, practising dollar-cost averaging with a regular saving plan is a good investment strategy.
Look no further as MYTHEO is well aligned with your long-term investment goals!
