18 March 2021
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 and on our investment portfolios.
In this episode:
US stimulus package cheques are in the mail [0:17]
Market movement data [2:30]
Why diversify when certain asset classes are not performing well? [4:07]
Should I use StashAway for my retirement portfolio? [8:14]
Philipp | 00:01
Hello and welcome everyone to another weekly market commentary from us at StashAway. Of course with us, our Chief Investment Officer, Freddy Lim. Hey Freddy, how are you?
Freddy | 00:10
I'm very well, Philipp. It's good to see you. And as you know, there's been a lot of U-turn in the market as well.
Philipp | 00:17
Yeah, lots of U-turning and we want to get right to it. We have some user questions as well. But Freddy, I think especially since last week, a lot of things happened. There's a lot of things happening, such as bonds and Gold having the rough start to the year that we kind of touched last week, right? But we also had the stimulus package being passed. The first cheques are arriving in US citizens' hands and the Fed is keeping their rates at zero. What do you make of all of this, Freddy?
Freddy | 00:50
I think, there's so much being said and being asked by a lot of our users. And I've been answering those questions. I figured, let's do it in one go. So, here I have a table that summarises all the different markets that we look at. Of course, we look at a lot more than this, but this is very representative of what's been happening on the news. And so, on this table, as you can see on a year-to-date basis, if I can focus you on that column where I'm highlighting it now. As you can see, most of the movement, the down move in the market - has happened in very long-dated government bonds and also to Gold because Gold is interest rate sensitive as well. And a lot of people were debating whether something was wrong with the credit rating of the US government or is it due to inflation? The truth is, it's neither. It's really about bond supply. As you know, the Biden administration, they have pushed through a $1.9 trillion fresh stimulus package. I think close to $240 billion [00:02:00] has been doled out. Some of our friends already said they got the stimulus cheques in the mail. So it's happening. There's also $1.5 trillion of the clean energy bill that's in the pipe and somebody has to pay for that. It's a 10- to 15-year reform in the form of grants to companies who research that's friendly for the environment, or battery research, or even electric vehicles - would get a lot of sponsorships. Some came in the form of tax credit. But, you know, it's lost tax revenue, and has to be refilled. And lastly, there's another trillion dollars for infrastructure spending; badly needed in the US, it's very antiquated. Loads to do and the Biden administration has shown the eagerness to really go into a reform mode, right? So, if you add 1.9, 1.5 and 1.0 together, that's $4.4 trillion of additional long-term supply. In terms of government bonds to be issued, the government would have to borrow. Somebody will have to buy those bonds. Somebody will have to pay for it. So, it's really about that, that's driving this because you don't see that much reaction here in the table, you can see BIL, short-term bills, barely move. SHY, I just highlighted, 1-3 year bonds, don't move a lot year-to-date. 3-10 year bond didn't even move a lot too. It's really focused on the 10-20 year and 20+, right? And Gold being sensitive to long-term rates as well, it's down 9% year-to-date for the year. So I guess that really summarises what really matters for the year so far.
Philipp | 03:45
So, do you see this continuing? So basically, with money flowing into the markets, rates being near zero. So people have to go out on the risk side of things. So [00:04:00] they have to invest in riskier assets in order to get any kind of good rates of return, which we can see from your sheet as well, right?
Freddy | 04:07
Well, you know, I would also argue the other way where instead of going for a high-yielding bond, corporate bonds, right? It's not government - you're better off in the stock markets. If you buy it in a diversified manner because your upside is fixed in the fixed income security and you're taking on very high credit risk with high yield, right? So it's still better to be in the stock market with a bit of a growth orientation. So I think that's what the monetary policy is trying to force people to do. But at the same time, you know, bonds would eventually work if you, whenever you have a market crash, the bond will do well. So the thing is that, don't forget, you still need to have some bonds, right? It's all about creating a mix of asset classes like we do at StashAway that produces a very balanced behaviour. So have a look at our portfolios here. This is our estimate in terms of the year. Despite all that's happening, our returns were very, very resilient, ranging from -1% for the low-risk portfolio which got hit by the bonds, but only down 1%. The bond market dropped one more 0, right? But also, looking at the balanced portfolio to the high-risk portfolio, we've done very, very well for the year, right? Now, in terms of the other news flow, some people were concerned about the last 1 month because if you focus yourself now on the 1-month column, you will see that there's this 2 big drops here, they're tech related. The first one is the very popular Cathie Wood's Ark Innovation fund. The other one is what StashAway invested in, the China Innovation fund. And Cathie Wood's fund was down close to 20%. And KWEB, the one that we invest in, about 16%. But on a year-to-date basis, Cathie Wood's fund was sort of flat. But [00:06:00] StashAway's choice in China, up 11.4%. So really, I think sometimes, I think we need to remember, like the headlines can be very scary and horrible. Headlines go: President Xi's trying to rein in China tech champions. Right? These things scare you. But in the grand scheme of things, they don't really matter. It's a blip. And as long as you have a diversified portfolio, it didn't matter because in the last 1 month, our portfolio didn't really move anywhere close to those levels. This is a blip on the chart, right? You're going to have some bell months, you're going to have some up-months. That's the path of the markets. It's not a linear straight line. But we shouldn't be sweating over a small amount of moves. These are very, very big moves that resulted in barely any changes on our portfolio. And we have a lot of this, right? We have a lot of Gold and Gold did not do well, but diversification is really working. What the numbers are showing you here is that diversification is really key, especially this year when we have the vaccine that's going to open up borders again slowly. It will push the fund flows out of pandemic winners like tech towards other beaten-down sectors. So the rotation is going to come. So, if you're concentrated in technology for the last 1 year, you need to really start diversifying a lot more. That's just one lesson to draw from this. You will have some bonds that are down, but you know, they will protect you against a rainy day anyway. So you just need to have a bit of everything mixed in the way that tailors to your risk profile, right? That's exactly what we do in the StashAway algorithm.
Philipp | 07:43
That's why it's also important to do the rebalancing, right? Especially when things have run up quite a lot, like you said, in the tech sector over the last year as the winners of the pandemic, right?
Freddy | 07:52
Exactly. Nothing is further from that. And I'm very pleased (about) the year-to-date, the returns, [00:08:00] if you analyse it - is actually - really high. I want to caution users to take a long-term view that you can't have the market going up every single day, every single week, every single month. You've got to think about risk.
Philipp | 08:14
No, absolutely. Thank you, Freddy, for showing us this. Really appreciate it. Let's get to one of the questions, because I know we're already running quite long. But I do want to get to one question. That's from Kingsley. He or she is asking, "I've watched a lot of videos from StashAway and have also invested quite a bit of money in it. I just want to know whether StashAway can be the only platform that I invest in for my retirement or is there other exposures that I should explore? And what do you suggest I look into, Freddy?".
Freddy | 08:47
Well, the short answer is - it's designed to be very diversified and go across many, many asset classes so that you have a lot going on when you invest with our platform. So it's trying to be holistic and we are. So, yes, I would like to say that we should be the only one if you're happy with us. But I will also say, like, look, there's no harm trying other things and comparing, but don't think of us as one line item in your overall portfolio. I get this a lot sometimes like, should I diversify away from StashAway? It's done so well in the last 4 years, should I now diversify away? And that's sort of strange to me because we have given you up to 40,000 securities to own. There's 30+ asset classes the algorithm will work with. It's super diversified, we have a strong track record of being very balanced, being very risk-focused. I wonder why you need to diversify. The portfolio is already diversified. It's got nothing to do with StashAway, it's got everything to do with your portfolio. So I would say if you think your portfolio has done well, and you are diversified, and you've been through ups and downs with us, if you're happy - this [00:10:00] is it. There's no need to do other things. But if you have researched something you liked, it's an allocation. You can always park an X-percent of your total net worth in something that you have researched on. So just make sure you keep it in mind at a portfolio level. Think of us as a portfolio.
Philipp | 10:18
Absolutely. Thank you for that explanation, Freddy. And thank you, Kingsley, for that question, because I think that's what we do get actually quite a lot. Good to discuss on the show today. With that being said, we do have a few interesting upcoming webinars for all the different regions that we're in. For our Malaysian audience, we actually have a topic called How to Plan for Your Retirement. That's on Wednesday, 24 March, 6pm Malaysia time. We also have one for the MENA region. It's called Financial Planning Basics, and that's on Tuesday, 23 March, 1pm Gulf Standard Time. For Singapore, we actually have two exciting events. We have one called Bring StashAway to your Workplace. That's on Tuesday, 23 March at 3pm Singapore time. And we have another one in Singapore, which is a cross collaboration between hoolah and StashAway. It's called Spending Responsibly and Investing Smartly. So, if you're interested in any of those, please follow the sign-up links in the show notes below. You can also find them on our website and on Eventbrite and anywhere else you can find us, Facebook, Instagram. So please check those out. We're looking forward to having a lot of you turn up for those. They're all really interesting. So keep it going. Keep your questions coming as well in the comments section and Freddy and myself will be with you again next week. Until then, have a wonderful week.
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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.