Q2 2020 Portfolio Review

With the pandemic still ravaging across many parts of the globe and economic activity still muted, the outlook for the future remains quite uncertain.

We know that this uncertainty is compounded by the upcoming US Elections and geopolitical tensions worldwide across a myriad of issues, from trade, climate change to Hong Kong and North Korea.

Thankfully, governments and central banks around the world are committed to using all tools at their disposal to support recovery efforts through a mix of both fiscal and monetary stimulus. The Fed has seen a combined US$3T of balance sheet increase since the pandemic started.

There are some disproportionate and contrasting scenarios though – while COVID-19 cases in the US are still rising, the tech-heavy NASDAQ has reached an all-time high, and the S&P 500 is actually close to regaining levels prior to the pandemic.

Perhaps it could be the better than expected economic data published, or that forward expectations of tech stocks are highly optimistic that they are in some sense “carrying” the recovery of the market.

The recovery is also seen in other parts of the world – China for example has seen a resurgence in stock market optimism, fueled by liquidity and efforts of the state media rather than fundamentals.

Portfolio Adjustments

In my last update, I mentioned that I’ve added a small overweight to large-cap growth (QQQ) and sold down low volatility ETFs. The strategy has paid off well with my tech-heavy holdings showing a significant outperformance.

In fact, I’ve also added China Tech in my portfolio (KWEB), bringing my tech overweight to roughly 20% of my holdings. I expect to retain this overweight going into the next quarter given the fundamentals remain positive for technology stocks (e.g. high cash flow, resilience to corona-virus impact, long-term behavior changes).

On the whole, my ETF portfolio has recovered relatively quickly after the draw down in March 2020. I was able to avoid worse draw downs (e.g. S&P 500) because of a more diversified and tech-tilted strategy so it definitely helped psychologically to not sell at the lows. Since the low in end-March the portfolio has risen close to the levels of pre-COVID.

From a technical perspective, the higher lows that the portfolio is making shows that there is quite a bullish sentiment in the broad-market. As such, I’ll continue to stay risk-on for now as the trend is likely to continue until proven otherwise.

I’ve also sold JD.com, one of largest single-stock holdings, to fund a more diversified tech strategy. JD.com has seen an impressive ROI in the past year, but I would like to reduce concentration risks in-line with my investment strategy.

On the robo-advisory side, I’ve also continued to add positions in StashAway and Endowus for various reasons. StashAway is a very solid platform for unlimited dollar cost averaging and same-day trade execution, so I use it to accumulate my global ETFs whenever I feel like buying into the market without the hefty commissions. Endowus is like the bedrock of my SGD-denominated global stock+bond portfolio – so I use it to complement my 100% equity portfolio in my DIY holdings.

I also like cash management products because there’s no lock in, Endowus recently launched theirs, so I use it to park my idle cash waiting to be invested on dips.

Be careful, but stay invested

With this solid recovery amidst the pandemic, there’s always the temptation to take profits and cash out, sit on the sidelines and wait for the crash before buying back in.

I personally don’t believe in timing the market, because successfully doing it requires a lot of skill and luck – which I don’t think I have the blessings for. Instead, I choose a broadly-diversified strategy, augmented with macro analysis to efficiently partake in earning the risk premiums of the market, while simultaneously reducing risks and psychological stress.

The huge amount of volatility seen in the markets is normal as new information about the virus and stimulus efforts continues to dominate headlines. At the same time, with the extraordinary amount of stimulus that’s raising asset prices, the value of cash will only continue to drop.

Hence, to me, the role of cash is a psychological buffer. In the short-term, the benefits of cash makes you feel calm as though you have a source of liquidity to tap on. However, in the medium to long term, cash can be more efficiently utilized to earn a higher return.

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  1. Hi there!

    Could you kindly share more on KWEB and why you choose to invest in this index rather than other index listed on HK stock exchange that also tracks similar portfolio?

    Cheers,
    John

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