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FE Advisory Asia Portfolio review – July 2018

FE Advisory's cautious portfolio reversed last month's loss, driven by strong US earnings growth and exposure to short duration corporate bonds.

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 Cautious portfolio at the end of July 2018.* Performance figures are in the menu image above.

 

Luke Ng, FE Advisory Asia

How did the market perform in July?

July was a positive month for equity markets as the busy corporate reporting period provided a timely boost. In the US, 86% of the S&P 500 firms that reported beat their estimates. These robust results, alongside strong employment numbers and continuing resilient economic activity all helped the market move upward.

It was a better month for European markets as US president Trump and EU president Junker agreed to work toward zero tariffs on non-auto industrial goods. Financial, telecoms and utilities were the best performing markets, whilst technology lagged, the latter seeing disappointing results from Nokia. GDP growth fell to 0.3% in Q2 from 0.4% in Q1. In the UK, sterling dropped as fears of a no Brexit deal came to the fore following the government publishing the so called “Chequers Agreement” outlining their proposal to leave the EU.

Emerging markets proved a mixed bag as Brazil and Mexico rebounded following the easing of political concerns. However, fears of trade tariffs continued to weigh on China.

For fixed income, July saw sovereign yields generally moving higher. By the end of the month there was speculation over the Bank of Japan’s policy to widen the band for the 10-year bond yields to fluctuate, which only served to add volatility to the bond market. On the other hand, emerging market debt, in particular the hard currency instruments, rebounded after the setback of the second quarter. High yield and investment grade corporates also delivered positive returns in July.

How did the cautious portfolio perform?

The cautious portfolio rose 1.04% in July in US dollar terms. Benefiting from the rebound in emerging market debt, our holding with Templeton Global Total Return increased by about 4% and ended up as the best performing fund in our portfolio. In fact, most of our underlying fixed income strategies performed well and delivered better return than the Bloomberg Barclays Global Aggregate, thanks to our stronger focus in corporates and shorter duration instruments. Our US equity exposure through Legg Mason, which was initiated back in May, also had a strong run despite the gain partly offset by the slump in the tech sector by the end of the month. Our holding in Chinese equities was the worst performing fund in the portfolio as escalating trade tensions with the US continued to weigh on China.  Nevertheless, the dividend focused strategy that we held was better protected on the downside, hence delivering a better return than the Chinese equity market in general.

 

FE Advisory Asia portfolio performance 

Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 June 2018 YTD
Cautious 1.43% -1.58% -0.14% 0.06% 0.39% -0.52% 0.39%
Balanced 3.64% -2.68% -0.18% 0.44% 1.22% -0.96% 0.75%
Growth 5.19% -3.60% -1.17% 0.63% 1.75% -1.22% 1.36%
     
  July 2018 YTD
Cautious 0.65% 1.04%
Balanced 1.99% 1.23%
Growth 2.90% 1.52%
Source: FE Advisory Asia. Growth rates in US dollar terms. Data as of 31 July 2018.

*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.

Part of the Bonhill Group.