2022 Annual Portfolio Review & Fundamental Analysis

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In my market outlook last year, I highlighted that 2022 will be a rough year ahead and as expected, 2022 was a rough year for all investors.

In 2022, Investors had to deal with the impacts

• Russia-Ukraine War

• China Lockdowns and Covid Zero Adherence

• High and stubborn inflation rate

• Rising Interest rates

And as a result of the ever-changing environment and highly uncertain future, investors’ confidence is badly affected and investors are rushing for the exit thereby causing almost all asset classes to register major losses in 2022 with the exception of commodities and of course, our portfolio is not spared.

In this post, I will be going through

1. how the funds that we had invested in had performed

2. previous actions taken and future actions that are expected

3. fundamental analysis and the expected annual returns of our investments

4. Market expectations on 2023

Without further ado, let's get started

Portfolio Funds Performances:

In 2022, all the funds that we had invested had registered losses with equity funds registering double-digit losses which are in line with how the other major indices such as the S&P 500 had performed.

That said, on a portfolio level, the losses that we suffered this year are mitigated largely by the action that was taken in 2021 and also the fact that we invest based on a dollar cost averaging basis.

Personally, here’s how my portfolio has been performing.

Retail Portfolio:

Institutional Portfolio:

For individual performances, please refer to your own investment account as the return may vary depending on when you start investing and also the extent to which you followed my actions when we bought the dip in 2022 that brings me to the next topic on actions taken

Actions taken & Actions Ahead

In anticipation of the poor performances in 2022, we had previously sold off half of our portfolio back in July 2021. The amount that we sold off is then broken down into three parts and is to be reinvested back into the same funds that we are using when the prices and valuations of the market had come down.

That said, if you have only started investing with me in 2020 or 2021, these portfolio actions do not affect you due to the limitation in portfolio size and implementation.

As prices had come down in 2022, we had currently invested the first two parts of the funds that were side-lined, which accounted for 60 to 70% of the total amount of the funds to be invested. For the remaining 30 to 40%, I expect them to be deployed moving into 2023 should the fundamental situation improves or the price decreases further.

Red flag = Sold

Green flag = Bought

Asian Equity:

Global Equity:

Thus far, the fund that we had re-invested in is only limited to the Asian equity as the valuations are attractive in the Asia region given how beaten down, they are over the last 2 years.

As for the global equities, the valuations are somewhat neutral and not attractive enough yet for me to consider investing in it on a lump sum basis but we will be rebalancing our allocation again as the market normalizes moving into the later half of this year and perhaps sometime next year.

If you do not know how to get started with your investments or if you do not have the time to manage your investments, you can consider engaging an Independent Financial Advisor who can help you make sense of the market and shortcut your investment planning process.

Fundamental Analysis

On the topic of fundamental analysis, from the angle of the price-to-earnings ratio, these are the findings for the Global equities as represented by the S&P500 and the Asia equities as represented by the MSCI All Country Asia Pacific Index.

For global equities, valuations had come back down to their long-term average given the anticipation of an earnings recession this year. That said, if we were to examine the price and earnings behaviour individually, what we will realise is that the earnings of the S&P 500 companies are still going strong while the fund prices are pricing in more pain to come in 2023.

What this means is that moving into 2023, we can expect more pain to come for the S&P 500 as in order to sustain its current valuations with a low and lower earnings figure, prices will have to adjust downwards.

Looking at what is in store for the global economy, it is likely that we will experience an earnings recession in 2023 and hence, more pain is expected for the S&P500.

For the Asian equities, valuations had continued to remain depressed at the back of China’s lockdown and deteriorating investor confidence.

Currently, the Price to earnings ratio is trading below its long-term average which is very attractive given that things are changing for the better in 2023 as China moves towards complete re-opening and herd immunity.

Looking at the earnings and price behaviour, while the decline in the fund prices is not fully unjustified, I feel that the extent of the decline is over-exaggerated as a result of mass panic and exit away from the China and Asia markets this year.

While the earnings may continue to experience a decline as a result of a slowdown in the global economy, the depressed valuations will provide a strong case for further upside in the markets.

What is missing for a recovery to occur in Asia is strong investor confidence which eventually will recover as the global economy stabilizes.

Now that we have understood where the two markets stand in terms of valuation, the next thing that we will be looking at is the projection of performances based on the outcome of my relative valuation model.

To smooth out the short-term volatility and noise in the data, a 3-year rolling average data will be used for the calculation and projection of the earnings per share.

For global equities, based on an earnings per share growth rate of 4 to 6% and a fairly valued market environment, the expected annualized return over 5 years is 1.2 to 3.1% while the expected annualized return over 10 years is 2.58 to 4.55%.

For the Asian equities, based on an earnings per share growth rate of 6 to 8% and a fairly valued market environment, the expected annualized return over 5 years is 9.4 to 11.5% while the expected annualized return over 10 years is 7.70 to 9.74%.

From the above findings, it is clear that the expected annual returns are pretty decent for the Asia markets as investors are able to buy into the future growth of a developing region at very low valuations. Therefore, the expected returns by investing in Asia now are driven both by valuations and earnings revisions that will happen as we revert back to the long-term average levels.

On the other hand, for the global markets, as the market is already trading at its fair valuations, investors who are buying into the global equity at this price will only be able to earn a return from the fundamental growth itself which is expected to be lower than the Asia markets as the global markets comprised mainly of developed markets that are unable to grow at the same pace as the developing markets itself.

2023 Portfolio Expectations

While the future expected returns look decent, I do not foresee them materializing anytime soon, at least not within the next 18 to 24 months as I expect the markets to remain depressed as a result of the headwinds that are caused by the stubbornly high inflation rate and the rising interest rate that is driving the global economy into a recession.

On the topic of when the market would stop falling and start recovering, these would only be possible if investor confidence recovers which I have done a video on as well as a detailed sharing of my market expectations for 2023 here:

For the record and transparency, I will be doubling my monthly Dollar Cost Averaging investment amount moving forward as my financial situation permits for it and I believe that 2023 is an excellent year to accumulate as discussed from my market outlook.

While I would highly recommend that you consider increasing your DCA to take advantage of the depressive prices to come, it should be assessed again to see if your financial situation permits to avoid taking on too much risk that you cannot afford to take depending on your short-term plans.

That shall be discussed during our annual review!

If you have any questions pertaining to the portfolio itself, do PM me and we can set up a meeting online to address any questions or concerns you may have.

Hang tight for the recovery and I’ll see you in our next annual review.

To find out more information about how you can benefit from my financial and insurance planning services, you can check out what I do on my website here:

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Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore