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FE Advisory Asia Portfolio review – July 2019

FE's cautious portfolio continued to be positive last month, driven by exposures in US equities and Asian high yield and emerging market debt.

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 2019*. Performance figures are in the menu image above.

Luke Ng, FE Advisory Asia

How did the market perform in July?

The US was the strongest performing market as the Feds decision to cut rates proved a boost to equities, which markets now view as more accommodative, with better growth prospects and a reduced chance of recession. Although growth has slowed, economic data shows that the US looks more favourable than elsewhere, with the dollar strengthening significantly over the month versus other currencies.

Japanese equities were more or less flat over the month, with the main news being that Prime Minister Abe won the elections in the Upper House, making the consumption tax rise in October a near certainty. Markets in the Eurozone were mixed, with data showing the economy expanded by 0.2% in Q2, versus 0.4% in the first quarter. The European Central Bank announced it was drawing up measures to boost the economy. Also worth noting is that UK equities did well in July in local currency terms. However, the month also saw huge weakness in sterling amid the choice of Boris Johnson as prime minister viewed as a threat with his plan of a “do or die” Brexit come 31st October.

Overall, developed market equities generally did better than emerging markets, with the increasing strength of the dollar proving a headwind for the latter. Within fixed income, it was another positive month for corporate investment grade and high yield bonds, whereas developed market sovereigns broadly trading sideways. Emerging market bonds also did well as the asset class benefited from the US interest rate reduction.

How did the cautious portfolio perform?

FE’s cautious portfolio rose 0.79% in July in US dollar terms. Within the equity sleeve of the portfolio, half of the assets are invested in developed market equities, with a strong focus into US stocks. The US exposure helped boost the portfolio’s performance, given that the US market was the best-performing equity market in July. The remaining equity exposure was allocated into Asian equities via funds managed by First State and Matthews Asia, which both products outperforming their benchmark indices and the emerging market equity sector as a whole.

The fixed income sleeve of the portfolio also did well in July, which was primarily driven by calls to maintain diversification into the different sub-asset classes, including Asia high yield and emerging market debt. These asset classes were also beneficiaries of the US interest rate cut in July.

FE Advisory Asia portfolio performance 

Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 June 2019 YTD*
Cautious  3.25% 1.19% 1.00% 1.23% -1.54% 2.77%   8.18%
Balanced 5.51% 1.42% 1.30% 1.81% -1.94% 4.17% 12.83%
Growth  7.36% 2.27% 1.75% 2.74% -3.95% 5.20%  16.05%
July 2019 Aug 2019 Sept 2019 Oct 2019 Nov 2019 Dec 2019 YTD**
Cautious 0.79%   9.03%
Balanced 0.24% 13.10%
Growth  0.30%  16.40%
Source: FE Advisory Asia. Growth rates in US dollar terms. *Data as of 31 June 2019. **Data as of 31 July 2019.

Full-year 2018 performance for the FE Advisory portfolios can be viewed here.

*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 Mark Allen Group.