Watch Freddy Lim, StashAway Co-founder and Chief Investment Officer, and Philipp Muedder, Head of Financial Planning, discuss the latest global events and their potential impact on the markets.
In this episode:
StashAway now has US$1 billion in assets under management [0:10]
GameStop’s short squeeze, r/wallstreetbets versus hedge funds [00:52]
Will the bullish trend from the start of 2021 turn into a bubble? [04:08]
Monitoring environmental metrics on investments [07:15]
Value versus growth in a post-crisis environment [09:22]
00:01 | Philipp: Hello and welcome, everyone, to another weekly market commentary from StashAway. Of course, with me, our Chief Investment Officer, Freddy Lim. Hey Freddy, how are you?
00:10 | Freddy: Hey Phillip! Nice to see you again. And, you know, I just want to say, StashAway has reached a new milestone and...
00:20 | Philipp: It's a big one.
00:21 | Freddy: Yeah, we announced it a couple of days ago that we have reached a billion USD of clients' assets under management. I want to take this opportunity to actually thank all the investors who've been with us through the journey and trusting us with their money, and navigating the markets with us for the last 4 years. I just want to give a special thanks to our users.
00:49 | Philipp: Absolutely. Thank you all so much. Also to all of our listeners on this channel and anywhere else, you've supported us along the way. So it's been a great journey so far. Freddy, we have, first of all, lots of questions from last week. I think it's the beginning of the year, coupled with a lot of changes in the investing world, in the markets. But one thing that's obviously fascinating, I think it really caught mainstream media by Thursday or Friday last week. This weekend was crazy. The first 2 days, 3 days of the week, it has been all over the news. What I'm talking about is obviously, the reddit, r/wallstreetbets, right? So, retail investors taking on hedge funds. Can you tell the audience a little bit, maybe some of them don't know yet, what your thoughts are about it, and what it's actually about, what's happening here?
01:45 | Freddy: Yeah. First, let's explain the situation. Essentially, there’s popular forums, right? Social trading, people sharing tips, and it's gone to a place where they're targeting the most shorted stocks by hedge funds. And one stock in question is GameStop, which is a e-game store that sells video games, with very poor earnings for the last 4 out of 5 years. And there's also stocks involved like AMC and Naked Brand. They're mostly smaller stocks, not large-cap, they're small-cap, and the forums have gotten people to come together to - I wouldn't go through the options and all the other complex mechanics - but essentially the net result is, it got people together to start buying those stocks en masse. And that really created a lot of so-called short squeeze on fund managers who have to run, duck, and cover. Let me do the math for you. If you long a stock in a portfolio, if it’s 3% of a portfolio, if it goes to 0, it's fine, it's 3%. But when you are short and the equivalent of 3% of your portfolio in a single name stock, and it goes up 18 times in the few days, you lose close to half of the value of your funds, right? So, the math is not quite the same for short sellers. And I think the lessons here to learn are a few fold. Number one, it's about size and liquidity, which is something that StashAway cares a lot about. So that this sort of wild gyrations have less visible impact on the portfolios. Two, it's about being more diversified, in the sense that you don't want to be very concentrated, to be a specialist in a single sector or a single name. And three, we would rather not get into the business of short selling, but we would rather buy protective assets if we think that there's a need to balance out risks with the market, rather than short selling. So, that's a lot of principles that StashAway really encourages and promotes over the years. It’s precisely to minimise such kinds of distortions in the markets.
04:15 | Philipp: Yeah, absolutely. And I think for everyone that has FOMO getting into any of these stocks, I highly would caution people at this point. Like you said, it's highly dangerous. You really need to understand what you're getting into when you look at this. Freddy, we did get a question, though, and I think that's probably on a lot of people's minds, right? We obviously had a great 2020, so stock markets have been going up at a really nice rate last year. The first few weeks of 2021 already, we've also seen great gains. I think we're slowly starting to see some more volatility coming back into the market the last couple of days. But one of our listeners Wood Liao was asking, how do you see this bullish trend? Is it continuing or do you see it becoming bubble territory at this point?
05:06 | Freddy: I'll give a very honest answer. I wouldn't know. And instead, I would rather prepare for risk scenarios on Day 1 of investing. This is exactly what StashAway has been doing over the last 4 years. We believe that risk management should be preemptive, not reactive, and you should always build it in, some portfolio insurance on Day 1. But to be useful to the question, as a fund manager in the past, I tend to say this: When the market is up and you can't find any reasons that it's going to go down, just simply, as a person or as a professional, you can't see a reason. Then it's time to start thinking about risk. So there's always those little all-wise words which I used to learn from people before me, and so I would rather go back to it again. Risk management starts now; starts on Day 1. Have a sufficient amount of goals, have enough bonds. You can have a lot of growth-orientation, but don't forget to have enough protection, regardless of whether the bonds are giving you yield or not, regardless of whether Gold is actually giving you yield or not. You need some of them to provide portfolio insurances.
06:26 | Philipp: Yeah, absolutely. Thanks Freddy for that. The next question was from Jasmin. She says she loves all the courses in the Academy. She's binge watching them like her favourite Netflix shows, which is really cool to hear.
06:38 | Freddy: Thank you for that.
06:40 | Philipp: She's asking if there's an ETA on A Deep Dive into ERAA® and StashAway: An Inside Look courses to be also available on the Academy platform. And I know that Freddy has already been recording the sessions. So, I think it's just about to be launched in the next month or two. So, keep checking back onto the Academy content in the app and I'm sure you'll see it pop up really shortly. But rest assured, Freddy's already recorded that in the studio, so it's good to go soon. The other question was from Bryan Tan, Freddy. And he's saying, "Given the increasing evidence between ESG and financial outperformance, according to entities like BlackRock and the MSCI SRI Index, will StashAway incorporate ESG metrics into our model in the near future?" Do you want to share some thoughts around that, Freddy?
07:30 | Freddy: I would also add to Bryan's point that the MAS also recently released a guideline on requiring fund managers to develop abilities to monitor environmental metrics like gas emissions and so on, per million-dollar revenue on all the stuff that they invest in. And I'm happy to say that StashAway had this capability from a very long time ago. And I'm also very pleased because you'll soon be finding out about StashAway's ESG scores by portfolios. The short summary is that you don't need the ESG label to have high ESG scores. So, that's actually always on my mind. It's just less talked about, and actually StashAway currently has very high ESG scores across our portfolios from the MSCI and the Morningstar ratings. We can see that. So, we would talk about that in the coming times. Also, there is increasing evidence that ESG can be treated as additional factors in the equity world for investors to think about. It can source diversification, and it can even provide some risk management, some. In the case of a slowing economic situation, ESG could be more protective, like the quality factor in equity investing, and it tends to outperform when things are not so good. And also, when you invest in certain countries, emerging markets, the G, governance, could provide very good accounting disclosure, or risk management, or transparencies. So there is definitely room for a lot more to be done here. And actually, you'll find out more in due time.
09:22 | Philipp: Yes, more to come on that. But again, this is something that we've covered a couple of times already for listeners who are new to this channel. It's obviously on a lot of people's minds and obviously it's on ours as well, so we will continue to make strides in that area. With that being said Freddy, we have one more question that I want to get to really quickly. And it's from Alex Wong. He was asking, "When you compare the Russell 1000 value and growth from post experience, from other crises before, value tends to outperform growth in the time we are in right now. Do you agree with that, or do you see, what's your view on that?".
10:05 | Freddy: Well, it's actually one of those proverb type things that, you know, at the bottom of the economic cycle, when the economy rebounded - the size factor in equity investing - the value factored in equity investing will start performing better than other factors. Again, actually it's not with certainty, it's just in a very - on average - sort of a statement. I would rather let the data lead us to it. We don't explicitly - Philipp or Freddy thinks this, and hence we should have this much of ETFs and something - no, it will be captured by the economic regime models and the valuation gaps, and all the stuff that we track on our investment framework is designed to pick up on these things and let the data speak. So I would say that, yes, this point might be valid, but the pandemic is a little special situation, and the speed with which value can catch back up again is really hard to tell. These things can just stay depressed for many years. And it has been for many years, by the way. Value investing has been the underdog for a decade, and it's been the big talk of town for all the quantitative investing platforms, and it's still underperforming. It may turn around, so who knows? But I'm not going to bet on it. We will let the data speak and let ERAA® do its own little rebalancing act over time.
11:32 | Philipp: Great! With that being said, last but not least, we have some upcoming webinars for the different regions we're in. For our Malaysian listeners, we actually have our next webinar on Wednesday, the 3rd of February, from 6pm to 7pm. The title is: How to Invest the Right Way Using ETFs. So, if you want to learn more about using ETFs, that's a great one to get started with, even if you want to buy them yourself. For the Singapore and the MENA region, we actually have a StashAway Portfolio Performance and Ask Freddy Anything Live!, a live session with Freddy. We talk about StashAway's portfolios, how they performed over time, and you can ask Freddy any questions you might have, or that you didn't get an answer to today or in any one of our sessions. That's on Tuesday, the 9th of February, 7pm Singapore Time, 3pm Gulf Standard Time. So join us for those, all the links are in the show notes below. If you listen to us through your podcast, there should be still some links in the show descriptions. Otherwise, always feel free to send us an email to email@example.com. Thank you Freddy for your time today. Thank you, everyone, for listening and we'll be with you again next week. Thank you so much.
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StashAway Management (DIFC) Limited (registration number CL 3982) is established in the DIFC pursuant to the DIFC Companies Law. Its registered address is Unit 1301, Level 13, Emirates Financial Towers, P.O. Box 507051, Dubai International Financial Centre, Dubai, United Arab Emirates.