Q1 2020 Portfolio Review

A lot happened in 3 months, right?

We went from ushering the new year and throwing parties into a worldwide lockdown and a mandatory circuit breaker here in Singapore. We went from zilch to 1.9 million worldwide Coronavirus cases and 121K deaths as of today.

We also saw oil prices plunging by more than 50% and several industries heading in turmoil, from travel, food & dining, tourism, hotels and many others, who have been struck hard by the worldwide travel bans and stay-home notices that impacted demand for their services.

As we continue to flatten the curve to free up capacity in our hospitals, avoid massive death tolls and give all of us a better chance of survival, it’s safe to say nobody really knows what the future ahead lies – how many people will eventually die, when will worldwide travel resume, whether we can completely reopen our borders, will there be a resurgence in virus cases and how will everything end?

Governments have already stepped in quickly with massive stimulus packages to stabilise the economic situation by taking huge fiscal deficits to inject cash directly into the economy, giving cash payouts to households and tax credits to businesses. The US has approved a historic US$2.2T package. Hong Kong is providing US$18B of stimulus package, while in Singapore our 3 stimulus packages so far have cost the government US$41B.

These fiscal measures should support consumption and help in restarting the economy when this whole saga dies down. We also don’t want businesses to be firing employees right now because we would need them readily when the economy restarts (hopefully) in the coming months.

At the same time, many businesses still have fixed and running costs that do not just disappear overnight, such as rent and interest payments. As such, governments worldwide are stepping in to either pass rent rebates from landlords to businesses, offer loan concessions or guarantees, and co-fund salary expenditures to support businesses’ cashflow as a temporary measure.

Many of us with investment portfolios have probably taken a huge hit by this pandemic. For those who did not manage their risks properly, the hit would have been much more painful to stomach. During the week of 24 Feb, the US stock market plunged fastest in history, taking just 6 days to enter fall 10%. On 9 March, the DJIA fell 1800 points at the opening, triggering a number of circuit breakers that suspended trading for 15 minutes. On 16 March, just one week later, the DJIA fell 12% and the volatility index (VIX) peaked at 82.69, the highest ever closing recorded.

Between then and now, we saw some form of a rebound in several markets, as investors price in the rapid resumption of economic activity as cases start to peak. Perhaps the market was oversold, or perhaps the initial estimates of the impact of this crisis was too pessimistic. Either way, nobody knows how to price such an unprecedented event.

Portfolio adjustments:

  • Since my last update, I moved from a 100% VWRD portfolio to a split between VWRA and MVOL – a low volatility ETF – for my DIY portfolio
  • During the crash, I’ve also added occasional short term hedging positions to cover my long-term holdings, these positions led to some profit which improved my overall risk to return ratio
  • I’ve also added a small overweight to QQQ (large cap growth) and sold down some of my low-volatility ETF as I believe there will be an outperformance in tech-related stocks vis-a-vis the market
  • For the robo-advisory side (StashAway | Endowus), I maintain my regular ETF DCA platforms with additional cash injections on market drops. Once again, robo-advisory platforms help me manage my risk a little better because I tend to be overly aggressive in my conventional DIY portfolio.

I think on a whole, my portfolio performance has been rather resilient to the huge drawdown. The drawdown was swift and deadly but the recovery and rebound in recent weeks has also been rather quick.

It’s still a little early to tell that we have seen the bottom, and obviously, nobody knows for sure whether the recent rally is a dead-cat bounce. I think markets have priced in a recovery in the second half of the year when restrictions are slowly lifted like in China, although there are still plenty of downside risks to that scenario.

I’d be constantly looking for signals to add long-term positions, such as a double bottom or bullish MA crossover. Risk mitigation is still a huge consideration for me, so if the crisis worsens, I’d also be looking to hedge temporarily. Consider a less risky portfolio allocation if you sold at the bottom.

That’s all for this update. I hope everyone is keeping well with the recovery in the markets and slowdown in the number of pandemic cases worldwide. Remember, health is wealth, so take good care of your health first – so that you can live another day to build your wealth.


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