The firm has taken a conservative view over the next six months during the latest rebalancing of its three model portfolios – cautious, balanced and growth – on May 31.
“After the May rebalancing, we have maintained a high proportion of fixed income across all three portfolios,” said Luke Ng, the firm’s senior vice president of research.
“It is even the case with the growth portfolio, where we have 20% allocated to fixed income due to a more cautious stance.”
In Q3 last year, global investor sentiment soured and hasn’t really recovered, he explained. Concerns over China’s GDP, RMB depreciation and credit risk as well as volatile commodity prices haven’t gone away.
“In 2016, we still have these uncertainties. There has been something of a rebound in commodities but not enough to act as a market catalyst. Investors are also worried about political risks such as the aftermath of the UK’s decision to leave the European Union and the outcome of the US election in November.”
Funds for all risks
The Alliance Bernstein European Income Portfolio fund is included in all three portfolios and over the last six months has had a 3.81% return, according to FE data.
“The key reason is that when the ECB launched the easing program, it was extended by allowing the purchase of corporate bonds,” Ng said. “So the European income fund’s strong focus on European fixed interest vehicles benefitted. It’s even in the growth portfolio.”
Last month, however, he decided to diversify fixed income in the growth portfolio by trimming the AB fund and introducing two mixed asset funds — Janus Balanced and Schroders Asian Asset Income — which brought exposure to assets in the US and Asia Pacific ex-Japan, respectively.
From 30 November 2015 to 31 May 2016, the return of the growth portfolio was 2.66% compared to its composite benchmark, which returned 0.89%, according to Ng.
FE Advisory’s model portfolios use selections from FE’s Top 100 list of funds available for sale in the region.
Ng said some funds from the top 100 – such as the AB fund mentioned above — are recommended for all portfolios, regardless of risk level.
Another such product is the JPMorgan Japan (Yen), which beat the underperforming Japanese market over the last six months with a 7.22% return compared to its sector (-1.52%) and its benchmark, the Topix (-1.95%), according to FE data.
Qual and quant analysis
FE Advisory Asia launched the FE 100 and the three model portfolios in November 2014, primarily aimed at Hong Kong retail investors, where the firm sees a demand for such services.
The top 100 funds are chosen through quantitative and qualitative methods. Analysts look at a fund’s FE Crown Rating, which measures alpha, volatility and consistency over the last three years and evaluate fund managers over a long track record, in some cases back to the year 2000, according to the firm.
The qualitative overlay includes interviews with portfolio managers to get an understanding of the investment philosophy and process of managing the fund, whether they have resources and team to manage it and under what circumstances the fund under- and over- performs.
