06 November 2020
Watch Freddy Lim, StashAway Co-founder and Chief Investment Officer, and Philipp Muedder, Head of Financial Planning and Partnerships, discuss the latest global events and their impact on the markets.
In this episode,
Why we should also be paying attention to the congressional election [0:17]
Does Ant Financial’s halted IPO affect your portfolio? [2:57]
Should you try to lock in your profits? [6:00]
Will StashAway ever add cryptocurrencies to the mix? [9:22]
00:01 | Philipp
Hello and welcome everyone to another weekly market commentary from StashAway. With us of course, our Chief Investment Officer, Freddy Lim. Hey Freddy!
00:10 | Freddy
Hi Philipp, good to see you again.
00:12 | Philipp
Good to see you as well! It's been a long couple of days now. The US election, it's been a long time coming. We've been talking about it quite a bit throughout the year. We finally came to a conclusion, but not really. But Freddy, do you want to give a quick update? Obviously, markets have been on a roller coaster last week and now though, for the last two and a half days, right? It's been very, very positive, even though, to many people's surprise, we still don't have a president-elect, right?
00:46 | Freddy
Ok, if we step back a bit, yes, Biden is leading with the counted votes, but there's still a lot of stuff coming in. But the conclusion is that Biden, all he needs is to win Nevada and he would have the minimum majority of votes to be a president. But I don't, personally I don't think that who's the president is the important question for markets, but more about the party dynamics, party majorities in each chamber of the US Congress. And the good news here was that the Republicans retain their firm majority in the Senate, which makes it really tough for Democrats to push through stuff like antitrust measures on Big Tech firms. So, that reduces the breakup risk on companies like Facebook and even Google. So, tech stocks outperform again, as we have seen yesterday, that's for a good reason. However, the Democrats will retain the House, although they lost some seats, but they still retain a majority in the House. So, the likelihood of a hung parliament, so to say, is very likely again. And as you know, whoever's the president doesn't pass bills; they can veto, but they don't really pass bills. Which leads us to Biden's foreign policy on China, he's still hostile towards China. But again, one version that's more towards using the WTO, engaging international allies to pressure China than to do unilateral actions such as a trade war. So overall again, another relative positive for markets. So, I think the fogs are clearing and the markets are really stabilising and looking quite strong.
02:33 | Philipp
Yes, thanks Freddy for that update. I think you made a good point because a lot of people are only looking at the president-elect, right? Because that's the big prize. But there was a lot of fear that the Democrats would actually sweep completely the House as well as the Senate away and then there would be a lot of power in their hands.
02:56 | Freddy
02:57 | Philipp
So, good summary of that, Freddy. The next thing that was obviously big news over the weekend and early part of the week was the highly looked out for Ant Financial IPO, right? Oversubscribed, huge build up, listing in Hong Kong, China, and Shanghai, right? It was pulled last minute. Can you update the listeners a little bit about what happened? And then also, what implications does that have for StashAway since we do have KWEB, which is a Chinese-technology ETF that does have Alibaba, the parent company of Ant Financial, as one of the holdings.
03:40 | Freddy
Well, it was a very last-minute shocker for Ant Financial for sure, and for investors who were gearing up to join the IPO. Allegedly, it was due to Jack Ma's comments, which I would rather not dive into, but more about taking a more objective approach. If you look at what the regulators, the central banks have said in China, is that Ant Financial is fast becoming a systemically large institution in China. However, the deposit requirements, capital requirements, and all those regulatory parameters remain much like a fintech company rather than a big banking institution sort of requirement. So, the said reason was to review capital requirements, risk parameters, and perhaps to implement more stringent measures for their capital reserves before the IPO can go on. So, that was the official reason. And actually to me, it does make a lot of sense because you're going public and you are huge, you're taking deposits now.
04:54 | Philipp
Big, big, big IPO, right? And a lot of retail investors wanted their share of it. It's only right that there will be a little bit more due diligence being done.
05:03 | Freddy
And having said that, yes, the KWEB, which includes shares of China Innovations ETF that we have invested in, has close to 10% of its fund size holdings in Alibaba. And I think Alibaba itself contributed probably to a -0.9% in returns these few days. But the fund is so diversified that it actually ended up this week, so far, a lot more positive. I haven't calculated but off the back of the envelope, it's up about 4.7 points out of a share price of in the 75's. So, it's up 6% roughly. So, it didn't matter at all, that's the power of diversification. I just want to remind our audience that that power remains in place.
05:56 | Philipp
Absolutely. And I think this is a good reminder for everyone that is picking individual shares, but own the sector, on that piece of the market and be diversified. That's right, Freddy. Let's get to some questions. We actually got quite a few from listeners last week. And for everyon that's new with us today, feel free to always ask questions in the comments below so that Freddy and me or the team can pick those up for Freddy or myself to answer them. But let's get into them really quickly. The first one is from Ridz M. He's saying, "What's the best way to lock in profits that we've gained without completely liquidating our portfolios on StashAway?".
06:37 | Freddy
Well, that's akin to not withdrawing it, but more like adjusting your risk level, but I would say, the power of technology is that it allows you to do flexibly what you want to do here, which is market timing in nature, which is something that we do not really recommend, but we rather you review your risk level and as to why you are so uncomfortable with the current risk level in the portfolios you have and review that reason and make a case for reducing risk. And that will be akin to sort of what you're trying to achieve here. Locking in some gains with the higher risk points that has more exposure to riskier assets has gained and moving it to a more balanced portfolio where you become a bit more protective and so there will be changes in the asset classes in the portfolio. So, that would sort of make you lock in some of the gains in the aggressive sectors. But again, I would urge the reason to be more about your risk appetite than your market timing.
07:39 | Philipp
Yeah, and I think the next one is almost like a follow up question, but it's from Corey and he's saying, "Are you able to withdraw the profit out?".
07:50 | Freddy
Well, you can withdraw anything you want. There's no lock ups like in traditional hedge funds. There's no withdrawal penalties or fees. You click the button and it's just banking delays, a day or two, you get it. However, we would rather recommend you take a long view on it. What's the reason behind that withdrawal? If it's a cash need that's outside your investment plan, you have a sudden emergency, sudden changes in personal life, that you want to withdraw. That's understandable. But however, if it's due to a market opinion or a market timing reason, then try to actually review your risk appetite as to why you're uncomfortable and make the right risk adjustment rather than withdrawing completely. We have mentioned in the past before, the cost of market timing when you get it wrong is actually extremely high. J.P. Morgan has done a study over a 25-year period, in the past if you missed the top 10, just the top 10 days in that 25-year period for the S&P, your return actually would drop from 9.8% to 6.32%. If you missed another top 10 days after that, it goes down to in the 3%'s. So, just missing those little bit of a big base would lose the majority of return. So, it shows the danger of market timing. I just want to make sure the reason for withdrawing is actually more related to personal circumstances.
09:22 | Philipp
Yeah. And then the next question, Freddy, came from Malvin. He's saying, "Since you guys have Gold in the portfolio, are you considering adding cryptocurrency such as Bitcoin to the portfolio as well, (it) has been doing pretty well since the March crash this year.".
09:38 | Freddy
Well, we are always on the lookout for new differentiated asset classes to add into the flagship portfolios. However, there are also regulatory standards and constraints, and in the case of Bitcoin or specific cryptocurrencies, today they are tough to qualify as an exempt investment product. Exempt investment products are basically simple products for retail investors to invest in. If they are not EIP, meaning they are not simple, there will be additional hurdles, requirements, and due diligence that needs to be done and needs to be approved by regulators before we can move on. So it's actually more from this angle that is harder for us to actually just include those cryptocurrencies in the portfolio. So, it's less likely today. But as things improve and standards improve in the segment and we are monitoring all the time, they will make it one day, but not today. So, that will be my summary answer. But we are looking into broadening it, not just a single token, but how about even looking at block chain technology rather than the cryptocurrencies as a whole, another segment to consider. So, these are things that we are constantly on the lookout for and reviewing for. Today, it's not happening, but we are monitoring for improvement in regulatory parameters for reasons to include them.
11:11 | Philipp
Yeah, and then the last question Freddy for today, I know we had a lot of them, but jjtoh, he's asking, "So, StashAway has an income portfolio that is based on the Singapore market right? Singapore-based income portfolio. Is the StashAway investment team currently looking into or considering an income portfolio based overseas, such as a US-based income portfolio?"
11:36 | Freddy
Yes, we are. This is the short answer, because it's part of our ongoing efforts to broaden the offerings and we hear you, it's on the table. We are actually looking at a global version of that, it's not just the US, we are looking at something that could potentially be way more diversified across geographies and currencies. So, it is a work in progress. So, bear with us.
12:02 | Philipp
Thank you, Freddy. And again, if you have any other questions, feel free to put them in the comments, so we'll pick them up next week Freddy and myself. With that being said, we have a few upcoming things that I wanted still to mention. So, we have a couple of webinars coming up. In Singapore, we actually have a StashAway Investment Certification workshop that's on 21 November, so in a couple of weeks, it's from 9.30 AM to 12.30 PM. So if you want to attend that, you can sign up with the links in the description below, as well as on our website. And for our Malaysian listeners, we have a webinar about An Inside Look into StashAway. So, you can ask a bunch of questions about how StashAway works, what you always wanted to ask us, 11 November, 6.00 PM to 7.00 PM, for Malaysia. Again, sign up is in the description below. Also, one last thing that I want to mention is we have our new podcast episode releasing today. It's all things venture capital. Our guest for this episode is Tushar Roy. He's a partner at Square Peg Capital, one of our investors in StashAway, and he shares how venture capital firms operate, the funding amounts, what draws them to making investment decisions. And he also shares about what excites him about Southeast Asia currently. So if you're considering approaching a VC for funding, if you're thinking to invest through a VC, whatever that might be. This episode is not to be missed. So head on to stashaway.com/podcast to listen to it. And also, again, the link is also in the description below. And you can find that on all different podcast hosting sites as well. With that being said, everyone have a wonderful rest of your week and Freddy and myself will welcome you all back next week. Bye.
StashAway Management (DIFC) Limited is regulated by the DFSA (license number F006312) for the provision of arranging custody, arranging deals in investments, advising on financial products, and managing assets, with a retail endorsement.
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.