Presenting the FE Advisory Asia Portfolio

Each month we will feature allocation in one of the three portfolios offered by FE Advisory Asia: cautious, balanced and growth. Data will also be displayed to show how well the portfolio has done compared to the previous month and year-to-date so that readers can get a sense of performance.

Additionally, Luke Ng, senior VP of research at FE Advisory Asia, will provide a concise analysis on macro events and their potential impact on the portfolio.

Three risk levels

FE Advisory Asia has designed the portfolios to target specific risk levels of cautious, with a target annualised portfolio volatility of 4%, balanced (7%) and growth (10%). They are rebalanced twice per year, typically in May and December.

The portfolios are managed using a proprietary optimisation system with strategic asset allocation insights from AKG to complement the shorter-term tactical asset allocation decisions made by our research team, Michael Li, COO of FE Advisory Asia, explained.

“With this, we aim to produce superior risk-adjusted returns via maximising diversification benefits, a process which has been endorsed and validated by London University’s Cass Business School,” Li said.

“Our portfolios typically comprise eight funds chosen from the FE Advisory top 100 list of funds spanning all asset classes and sectors from the Hong Kong SFC-authorised fund universe.”

Michael Li, COO	Luke Ng, senior VP of research

This month we present a more detailed breakdown of the cautious portfolio. Performance figures are in the menu image above.

Source:  FE Analytics 

Portfolio breakdown and holdings are based on latest published data for each constituent, which may have publication dates that differ.

Percentages are based on current holdings and should only be used as a guide. Some information is provided to FE from independent third parties whom FE does not control. FE cannot guarantee the accuracy or reliability of the data, or its suitability for use by all investors.

Original weightings reflect the weightings at the last portfolio change – 30/11/2016

Would you summarise the macro events you considered when rebalancing the ‘cautious’ portfolio at end-November?

Luke Ng: In the six-months to November, markets were initially shocked when the UK voted to leave the EU back in June. However, the market hangover was short-lived as global equities, led by emerging markets, continued to push higher in to Q3. At the same time, cyclicals overtook defensives to lead the gains for the year to date. The world then received it biggest black swan event of the year in November, as Donald Trump was hired to be the 45th president of the US. Not surprisingly, given Trump’s conservative and protectionist stance, US equities have risen quickly as investors made bets on potential future winners. Meanwhile, the government bond-led rally in fixed income came to an abrupt interval and saw yields surge following the sell-off by investors.

What actions did you take?

Luke Ng: We have decided not to make significant changes in our recent November rebalancing. If you look at our cautious portfolio, we have maintained approximately 80% of our investments in fixed income and 20% in equities. Within our fixed income sleeve, our fund holdings are mainly US dollar-denominated amid the divergence in central bank policies by the US Fed and the rest of the world. In doing so, we have taken the decision to lock in our gains and sell out of the AB European Income Portfolio. While we expect to a see a gradual pick-up in inflation as well as a steepening of the yield curve after the US election, we have also diversified our fixed income exposure by holding funds with very short duration i.e., the Templeton Global Total Return. Overall, we believe our fixed income holdings provide good diversification in terms of duration, asset type and region.

Elsewhere, we have increased our US exposure by taking a position in a US-focused mixed asset fund. We like the flexibility given to the manager to move between US equities and fixed income as they see fit. We have also replaced our Chinese equity exposure with a dividend-focused strategy to provide a greater balance between growth and protection, as well as increasing overall diversification benefits for the portfolio.