Performance Review: November 2020

Performance Review: November 2020

Thursday, 10 December 2020

Written by Amirudin Hamid, Portfolio Manager of GAX MD

After two months of consecutive losses, global equity markets recovered spectacularly. Adding to the bullish sentiment was a series of positive news on the development of COVID-19 vaccines.

The Growth and Inflation Hedge portfolios rose by 9.63% and 4.35% respectively whilst the Income portfolio dropped by 0.16%.

Chart 1: Functional Portfolios’ Performances for the month of November 2020

Performance Review: November 2020

Source: Gax MD Sdn Bhd, December 2020

The GROWTH portfolio rose by 9.63% in MYR

The Growth portfolio increased by 9.63% in November, which was attributed to the equity market’s big rally after Joe Biden won the US presidential election and the advancement of COVID-19 vaccines. All investments inside the Growth portfolio ended the month of November with positive gains. Leading the pack were the Singapore (EWS) and the UK (EWU) markets, which were among the top three worst performers in the previous month.

There was no specific news related to the Singapore market, but EWS ETF spiked up by 14.99% in November. The market may have rallied because it is a good proxy to global economic recovery as the country’s total export is valued at more than 1.7x the size of its economy.

The UK ETF (EWU) has been in a roller coaster ride in the past years. But in November, the ETF chalked up a gain of 13.81% as investors reacted positively to the aggressive monetary policy move by its Central Bank. The UK Central Bank spent EUR150 billion in the bond-buying program in November, which was much larger than the market’s expectation. Also, the bank hinted to cut the interest rate further to below 0% from the current level of 0.1%.

The INCOME portfolio dipped by 0.16% in MYR

In November, the Income portfolio was down marginally due to currency losses. At month-end, the US Dollar traded at 4.0730, which was 1.88% lower against MYR from the previous month.

On one hand, less risky assets, specifically the US Treasury ETFs, all had negative returns in MYR. The 3-to-7-year Treasury Bond (IEI), 7-to-10-year Treasury Bond (IEF) and Treasury Bond with more than 20 years to maturity (TLT) dropped by 1.83%, 1.64% and 0.34% respectively. However, in USD, IEI only dropped by 0.05% while, IEF and TLT rose by 0.24% and 1.54% respectively.

On the other hand, non-US Dollar bonds benefited from a weak USD. For example, the Emerging Market Local Currency bond (EMLC) was the best performing asset inside the Income portfolio with 3.60% gains.

High yield bonds also performed well as short-term high yield bond (SJNK), and High yield bond (HYG) were up by 1.32% and 1.31% respectively.

The INFLATION HEDGE portfolio increased by 4.35% in MYR

The Inflation Hedge fund had one of the best monthly performances in November. Almost all asset classes had a strong rally except for Gold ETF (IAU).

News regarding the vaccines has given a glitter of hope that the economy will soon return to normal. With the expectation of better economic outlook ahead, the Crude Oil ETF (DBO) rallied very hard and was by far the best performing asset across all the three functional portfolios, with a gain of more than 20%. Real estate also had a good month. Real Estate Mortgage (REM), International Real Asset (RWX) and US Real Estate (IYR) had gains between 6% to 16%.

Gold ETF (GOLD) dropped by 7.12% as the haven asset lost its shine in the wake of exploding interest towards the riskier asset classes.

It must be noted that, the actual portfolio returns to the investors is the combined weighted return from the allocation to each functional portfolio. For example, if an investor allocates the investment equally: 33.3% in Growth, 33.3% in Income and 33.3% in Inflation Hedge, the actual portfolio return is (33.3% x 9.63%) + (33.3% x-0.19%) + (33.3% x 4.35%) = 4.60%.

Our Thoughts

November was a good month for most investors who were skewed towards higher risk portfolio strategies. Equities, commodities and high yield bonds all had significant gains. While we see some happy faces from investors, some are concerned over the performance of Gold, the US Treasury and the US Dollar.

It is just not possible to have different assets perform well all at the same time. There will always be a hit and a miss. November was a good month for many, but investors who invested in safe-haven assets took a bite. Gold was down by more than 7%, while the weaker US Dollar had negatively impacted the treasury ETFs, one of the core holdings inside Income portfolio.

As you can clearly see, MYTHEO invests across different assets by grouping them separately in three functional portfolios: Growth, Income and Inflation Hedge. More importantly, each functional portfolio has an algorithm of its own to manage and allocate the assets efficiently.

This is a distinguishing feature of MYTHEO when compared to other platforms in the market. For example, in MYTHEO, the investment in gold is part of the Inflation Hedge portfolio that also invests in many different assets such as commodities, metal, oil, infrastructure, inflation-linked bond and real estate. Gold was substantially down in November, but the Inflation Hedge portfolio was up by more than 4% driven by the positive performance of all other assets.

It was the same for the Income portfolio. Treasury ETFs are safe-haven assets and tend to perform below par when investors are taking more risks. But MYTHEO's Income portfolio holds more than just treasury ETFs. The portfolio also invests in non-US Dollar and high yields bonds that are still on investors’ menus when they are adding more risks. Despite losses across all treasury ETFs in November, the Income portfolio was only down by 0.18%, which was supported by the gains of non-US Dollar and high-yield bonds.

That's the benefit of investing in a portfolio that is well-diversified across many assets. Besides that, MYTHEO is equipped with an algorithm that rebalances and reallocates automatically to ensure that your investments are optimized across all market cycles.

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