The Year of the Dog has been a tough one for the global markets but recent weeks have seen a marked improvement in the performance of various markets. Could that be a sign of the things to come in the new Year of the Pig? I am no fortune-teller, but one thing that is sure that there are opportunities and strategies to position our portfolio to better mitigate the one thing that will always stay – volatility in the markets.
Volatility is something that can be a pain for some investors. How many of us truly enjoy seeing our portfolio go through wide gyrations? A part of me sometimes wish for greater predictability in the movement of markets, but swings in markets give rise to opportunities, like it or not. That is where investors who have the stomach for volatility and have their sight fixated on why they are investing in the first place can stand out versus the crowd.
Talking of something that has been taking up space in the news – Marie Kondo has been generating many headlines especially after she had started appearing in Netflix's Tidying up with Marie Kondo, at the start of this year. American audiences would mostly be new to her KonMari methods of 'spring-cleaning' – essentially, looking at what is in our home, keeping the items that 'spark joy' for us, while discarding or donating the items that don't (without forgetting to say thank you to the items). But Kondo has been probably a little more well-known to us in Asia, because I came across her book, The life-changing magic of tidying, some time ago.
I have had very little success decluttering my home or my office, as my family members and colleagues can readily attest to, but I would like to think I am making some progress with my investment portfolio.
A couple of the investments I have been looking to add into the last few weeks have been into firstly, Asian high yield bonds, and secondly, as mentioned in a previous post, my regular savings plan into Asian equities. So much about diversification you may think – but I have that covered with FSM Managed Portfolios (Aggressive).
Asian high yield bonds offer very decent yields. Of course, do not equate this investment class to short duration bonds because the former are clearly riskier and more volatile. However, if you are looking to hold onto this investment for a few years, you are looking at two ways to build your wealth. The first way is via the coupon payouts from the Asian high yield bonds, and the second way is via capital appreciation, especially after their torrid performance in 2018.
Our recommended in this space is the Fidelity Asian High Yield. My colleague from the research team, Shawn, has an article featuring a few interesting funds, including this particular one that is in our Recommended Funds list, recently. Our team also interviewed the Fixed Income Investment Director at Fidelity International. Another fund that you can also consider is the Allianz Dynamic Asian High Yield Bond. One of the features in this particular fund from Allianz is its relatively lower shorter duration: its effective duration is 1.84 years (with a yield to maturity of 12.47%) based on its end-November 2018 factsheet. Do note that the YTM would have come down after the uptick in the performance of the various asset classes at the start of 2019, including for the Asian high yield bonds, but we still believe the latter offer value to investors. For investors who also have a view that interest rates could still rise further going forward, they may want to take note of the different funds' effective duration periods.
The other idea I would like to share is about taking charge of our SRS portfolio. For many of us – me included – we tend to look at spring-cleaning our SRS portfolio once a year and usually that happens at the end of the year when there are campaigns and promotions on doing a transfer to our SRS account.
The trouble is that a whopping 33% of the money in the SRS then stays inside the cash (according to the Ministry of Finance, as at December 2017). And, that is really a terrible mistake. We only receive 0.05% per year on the SRS cash that we leave with the SRS operators. Contrast this to, let's say, the Asian high yield bond funds – with yields to maturity of up to 10% or thereabouts – and it is clear we can start doing a KonMari spring-cleaning for our SRS portfolio if our time horizon and risk appetite are commensurate with Asian high yield bond investments.
With that, on behalf of the team at FSMOne.com, I would like to wish all of our investors and readers a Happy Lunar New Year, with abundance of good health, bliss and wealth!
Invest profitably & sincerely yours,
Jean Paul Wong
General Manager, FSMOne.com
If you have any comments, feel free to email me at jeanpaul@fundsupermart.com
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