FE Advisory Asia Portfolio review – June 2018

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FE Advisory rebalanced its cautious portfolio at the end of June, reducing risk by switching to a shorter duration fixed income strategy.

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 potential impact on the portfolio.

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

Data: FE Advisory Asia

Luke Ng, FE Advisory Asia

How did the market perform in June?

June was generally a tough month for equity investors, with most markets posting a negative return. US equities proved the best performing market among developed equities, thanks to the resilient job, manufacturing and consumer confidence figures. While the US Fed announced an increase in interest rates by 0.25% in the month, in the same week the market also saw a rise in trade war rhetoric, helping send global equities lower. European and Japanese equities, and in particular the automakers, were hit amid fears over possible tariffs which could be imposed by the US.

Emerging market equities were hit even harder as trade concerns escalated, this coinciding with the strengthening in the US dollar, which placed further pressure on these markets. While China was under the spotlight amid the bilateral trade disputes with the US, other Asian economies were also impacted due to their participation in China’s supply chain. Not surprisingly, Asia-Pacific equities ended up lower than regional peers in emerging Europe and Latin America during the month.

Fixed income also fell alongside equities in June, with sovereign investments generally underperforming corporates and high yield. Overall, the Bloomberg Barclays Global Aggregate fell 0.44% in US dollar terms for the month.

How did the cautious portfolio perform?

The cautious portfolio fell 0.52% in June in US dollar terms. Our portfolio was rebalanced at the end of May, and the moves we undertook improved our performance in June — otherwise, the portfolio would have fallen by over 1%. The key move we made in the fixed income sleeve was to reduce our duration risk by switching some of our holdings into a shorter duration strategy, and this fund marginally gained by 0.12%, which turned out to be the best performing fund in our portfolio.

In fact, most of the fixed income strategies we held performed well in the month and outperformed the Bloomberg Barclays Global Aggregate, except our emerging market exposure with Templeton,which continued to suffer from the weakness of the sub-asset class. Increasing US equity exposure through a new position with Legg Mason also contributed positively, as the US was the best performing equity market in June. In addition, our other equity holdings, including First State Asia Opportunities, also weathered well in the downmarket, thanks to a core focus on high quality stocks.

 


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%
Source: FE Advisory Asia. Growth rates in US dollar terms. Data as of 30 June 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.

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