Follow the data


StashAway co-founder and chief investment officer Freddy Lim.

ALTHOUGH most financial markets have recovered from the Covid-19 shock, a great deal of uncertainty remains in the investment environment as the pandemic continues.

The spread of the Covid-19 Delta variant, for instance, is already causing investor jittery. Rising inflation, on the other hand, also ranks high among the concerns of investors these days. And these concerns are already reflected in the volatility of global stock and bond markets.

It may be challenging to navigate the market volatilities, but there are always opportunities to preserve capital, mitigate risk and realise competitive returns.

Diversification is key, but an agile asset allocation strategy is also important, according to digital fund manager StashAway.

The robo-adviser co-founder and chief investment officer Freddy Lim says the group invests and reoptimises or updates its clients’ portfolios based on prevailing economic data and signals generated by its system.

“Asset allocation continues to remain our long-term focus through different economic cycles. Our approach of investing in diversified portfolios suited to different economic environments helped us weather the storm and recover,” he tells StarBizWeek.

Lim shares that while StashAway’s 12 multi-asset portfolios were negatively affected during the March 2020 global market turmoil caused by the Covid-19 pandemic, the robo-adviser’s investment strategy managed to keep them within the prescribed risk budgets, and these portfolios recovered much of their losses quite promptly, boosting returns and giving a positive performance overall.

“Our clients’ portfolios, which had a healthy exposure to the China technology sector and gold, have notched positive returns of up to 37% since May 2020,” he reveals.

Inflation concern

Looking ahead, Lim says, the data paints a clearer picture of what’s happening in the economy.

And right now, inflation should be a concern for investors, he reckons, noting that the indicator serves as a precursor to rising interest rates, which in turn could see equity valuations take a hit.

“As such, our portfolios feature a healthy exposure to inflation insurance as well as cyclical assets to take advantage of economies re-opening,” he says.

At present, economies are growing more than they were a year ago. However, there are clear signals that inflation is accelerating in the United States, while non-US economies are experiencing disinflationary growth, that is economic expansion, with low inflation, in non-US economies.

“Our system has signalled to update our portfolios’ asset allocation accordingly. We call this update ‘reoptimisation’,” Lim says.

“Our goal now is to have inflation protection in our portfolio, where US exposure is concerned, while taking advantage of the return of cyclical growth for the rest of the world exposure,” he shares.

Lim argues that inflationary growth doesn’t tend to last, citing the US economy has experienced only several short-lived episodes of inflationary growth since 1990. Nevertheless, we could stay in this regime as long as it takes to vaccinate people, reopen borders, and restore supply chains.

“Even though we are optimistic that things will go back to normal soon, we don’t base our investment decisions on optimism: we only base our investment decisions on the data we can see,” Lim explains.

“And because there’s no way to know whether this economic environment will last months or years, we have reoptimised our clients’ portfolios to insure them against the effects of inflation. After all, the key to success in an inflationary growth regime is to embed effective inflation insurance in portfolios,” he points out.

Diversified allocation

It has been well over a year since the markets bottomed out due to Covid-19-related economic activity in March 2020.

As guided by data, StashAway is beefing up defences against inflation for its clients’ portfolios, while increasing growth opportunities globally.

“While US growth is rebounding very sharply, inflation is a concern. Outside the United States, inflation is more benign, and cyclical sectors have recovered strongly,” Lim says.

“As such, asset allocation will feature more exposure to resources, through Australian equities and energy-focused exchange-traded funds, or ETFs,” he adds.

Despite anti-monopoly measures China imposed on mega technology companies, Lim says, the group remains bullish on the Chinese tech sector for the long term.

He notes the country has a five-year tech timeline that includes the development of semiconductors, servers, cloud computing, and fifth-generation (5G) networks.

For broader protection against inflation, Lim reveals, its clients’ portfolios will feature a healthy allocation to gold, real estate investment trusts (REITs) and inflation-linked bonds.

In general, digital innovation has been instrumental in helping businesses and individuals cope with Covid-19, and this applies to investing as well. With increased economic uncertainty and more time spent at home, investing through digital channels has become normal, Lim says.

On that note, he is optimistic about the prospects of robo-adviser platforms in Malaysia.

“We truly believe robo-adviser platforms have become mainstream investment options for Malaysians, since its introduction in 2018,” Lim says.

“Robo-adviser platforms such as StashAway has helped retail investors invest globally to secure their financial objectives through Covid-19, not just by growing their wealth in 2019, but protecting it in 2020,” he adds.

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