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  • Writer's pictureDaniel Lee

2023 1st Half Portfolio Update

Updated: Jul 25, 2023

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A lot has happened in the first half of 2023, in this article, I will be going through

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

  2. previous actions taken and future actions that is expected

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

  4. Market expectations for 2nd half of 2023

Without further ado, let’s get started


Portfolio Fund’s Performances:

In the first half of 2023, all the funds that we had invested experienced a recovery with the S&P 500 taking the lead.


The stellar price performance of the S&P 500 can be attributed to the positive economic data of the United States as well as the shift in investor confidence as investors become more aggressive driven by the hype surrounding the artificial intelligence stocks.


The disappointing price performance of the Asia equity can be attributed to the lacklustre economic data from China which had fallen short of what analyst was expecting given its narrative.


I’ve covered the topics in greater detail in my 2023 1H Market Updates, so please read that first before going into this report!



Here’s how my portfolio (which is identical to how I advise you guys) has been performing.


Retail Portfolio:


Institutional Portfolio:


For individual performances, please refer to your 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 And Potential Actions Ahead

No actions were taken for the 1st half of 2023, as prices have yet to reach my third price target to re-invest the amount that we had previously sidelined back in 2021.


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 a refresher, 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’m still adopting a wait-and-see approach.

Red flag: Sell Green flag: Buy


I will be deploying the remaining funds should either the prices come back down to hit my 3rd price target or if fundamentals improved for the better.


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 latter half of this year and perhaps sometime next year.


 

Fundamental Analysis and Future Expected Return

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 the global equities, valuations had come back down to their long-term average given the correction in 2022 coupled with resilient earnings in 2023.


Despite having the risk of the most anticipated recession looming around, the economic data and investors’ attitudes seem to suggest otherwise. (Truly a weird time to invest).



Given what has materialized over the first half of 2023, my stance towards the probability of an earnings stagnation as opposed to an earnings recession has since shifted to a 50-50 chance.


What this means is that should the United States successfully pull off a soft landing (consensus now is that they won’t), we will then initiate a portfolio rebalancing to revert our portfolio allocation to its strategic allocation levels of 70% Asia and 30% Global Equities.


That said, this will require the dust to settle (around 6 to 9 months) after the federal reserve has completely stopped its rate hikes. Only time will tell.



On the other hand. for the Asian equities, while prices have recovered slightly, valuations had continued to remain depressed at the back of China’s disappointing reopening data.



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 exaggerated as a result of mass panic and exit away from the China and Asia markets during 2021 and 2022.


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 -0.2% to 1.7% while the expected annualized return over 10 years is 1.86% to 3.82%.



For 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 9.5% to 11.6% while the expected annualized return over 10 years is 7.76% to 9.79%.


From the above findings, it is clear that the expected annual returns are pretty decent for the Asia markets as investors can 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 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.


 

Portfolio Expectations Moving Into 2nd Half of 2023

While the future expected returns look decent, I do not foresee them materializing anytime soon, at least not within the next 12 to 18 months as I expect the markets to remain extremely volatile as a result of the headwinds.


What this means is that short-term price actions will not be that sustainable in the long run until the headwinds are addressed.


On the topic of when the market would experience a sustainable bullish price action, these would only be possible if investor confidence recovers which I have previously mentioned in my market expectations for 2023.



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.


 

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


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