FE Advisory Asia Portfolio review – December 2018

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The portfolios were caught in the market decline in December, but downside protection limited the fall.

Each month we feature the allocation in one of the three portfolios offered by FE Advisory Asia: Cautious, Balanced and Growth. Data is included 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, provides a concise analysis on macro events and their impact on the portfolio.

 

A breakdown of the balanced portfolio at the end of December 2018*. Performance figures are in the menu image above.

 

Luke Ng, FE Advisory Asia

 

How did the market perform in December?

Luke Ng: Ongoing concerns over global trade and slowing economic growth meant December proved another difficult month for equity investors. The US market was one of the hardest hit as a combination of the Fed raising rates, ongoing fears over the China trade dispute and warnings from several tech firms (notably Apple) on their earnings sent markets tumbling. The only areas that really held up were defensive sectors such as utilities, reflecting a difficult environment for riskier assets.

In Europe, we saw warnings of lower demand from car manufacturers, whilst data showed that business activity was at its lowest level in four years. Political unrest continues in France, although there was some good news as the long running budget dispute between Europe and Rome on Italy’s budget was finally resolved. In the UK, domestic-focused sectors suffered as the threat of a “no deal Brexit” grows. Emerging markets significantly outperformed developed markets during December, but still ended the month sitting on a loss.

Fixed income generally benefited during this risk-off environment, with treasuries and high quality bonds registering positive returns. These assets performed better than the higher-yielding instruments as the latter marginally fell in the month.

How did the balanced portfolio perform?

Luke Ng: The FE balanced portfolio fell 2.79% in December in US dollar terms. We rebalanced our portfolio at the end of November, and the key moves were to reduce our exposure to developed market equities, particularly from the US, and re-invested them into emerging market assets due to more attractive valuations.

The changes certainly helped in the month as developed market equities led the correction following a stronger run earlier in 2018. Adding Schroder Asian Asset Income into the portfolio last month further enhanced our downside protection as it increased our exposure towards defensive sectors among our equities portion. Our strategies investing into fixed income performed broadly in-line with the markets, all posting positive returns in the month.

 

FE Advisory Asia portfolio performance 

Jan 2018Feb 2018Mar 2018Apr 2018May 2018June 2018YTD*
Cautious1.43%-1.58%-0.14%0.06%0.39%-0.52%0.39%
Balanced3.64%-2.68%-0.18%0.44%1.22%-0.96%0.75%
Growth5.19%-3.60%-1.17%0.63%1.75%-1.22%1.36%
   
 July 2018Aug 2018Sept 2018Oct 2018Nov 2018Dec 20182018
Cautious0.65%-0.17%-0.43%-2.47%1.15%-0.92-2.21%
Balanced1.99%1.12%-0.59%-6.67%1.40%-2.79-5.69%
Growth2.90%0.29%-0.60%-8.78%2.46%-4.95-8.86%
Source: FE Advisory Asia.  *to 30 June 2018. **to 30 December 2018. Growth rates in US dollar terms.

*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.
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 FE’s research team.
The 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.

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