FE Advisory Asia Portfolio review – October 2018

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The plunge in global markets in October sent all three FE Advisory portfolios down, their biggest monthly decline this year.

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 October 2018*. Performance figures are in the menu image above.

 

Luke Ng, FE Advisory Asia

 

How did the market perform in October?

October proved a brutal month for equity investors as markets saw their biggest monthly decline in over six years, with all major markets posting losses of over 5%. The selloff began with the Fed raising rates as expected, before going on to indicate that we should expect faster and more frequent rate rises. This raised concerns that the US is moving into a late economic cycle and that the era of cheap money was coming to an end.

Despite this, not all was doom and gloom. News in the US was relatively good with strong corporate earnings season continuing and unemployment hitting its lowest level for fifty years.

Overall the month saw a global selloff across equity and bond markets. The selloff was even more pronounced in the emerging markets, led by the economies in Northeast Asia. While the export-oriented economies such as South Korea and Taiwan were dragged lower by a weakening global economic outlook, China was also plagued by fears of an economic slowdown and its ongoing trade tensions with the US, despite government support through share buybacks.

With very few safe havens out there for investors, the Brazilian market proved an exception and one which rallied on the back of presidential elections, the results of which were seen as market friendly.

How did the Cautious portfolio perform?

The FE cautious portfolio fell 2.47% in October in US dollar terms. Our equity exposure was inevitably hit during the brutal market correction. However, our holdings, especially in Asia, had a strong focus on quality and were less severely hit.

Core parts of our cautious portfolio are comprised of fixed income exposure, which were broadly diversified into multiple sub-asset classes. All of these holdings proved better off than the Bloomberg Barclays Global Aggregate, which was down 1.12%.

The best performing holding of the month was the Templeton Global Total Return Fund. It is a strategy that has strong exposure to emerging market debt, with active positions to long selective emerging market currencies and short euro and Japanese yen against the US dollar. Exposure to long Brazilian real and Argentina’s peso, as well as shorting the euro, were positions that made positive contributions to the fund in October.

 

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 2018YTD
Cautious0.65%-0.17%-0.43%-2.47%-2.42%
Balanced1.99%1.12%-0.59%-6.67%-4.32%
Growth2.90%0.29%-0.60%-8.78%-6.43%
Source: FE Advisory Asia. Growth rates in US dollar terms. Data as of 31 October 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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