Daniel Lee
- Jan 3
- 8 min read

[Portfolio Updates] 2023 Portfolio Review

If there’s a word to describe the markets in 2023, the word would be unexpected.

In 2023, we’ve seen the Western/Global markets recover almost the entirety of their 2022 losses at the back of an expected recession that did not materialise. This has caught a lot of investors by surprise as many had previously sold off their investments to park in high-yielding cash instruments.

We expected China’s recovery to be one that would boost investor confidence in Asia only for it to unexpectedly fall short of expectations as the government continued to sit on the sideline while allowing the property segment to run down.

We expected the Russian-Ukraine war to de-escalate and while there has been some positive development in peace talks (partially due to the lack of continued funding by Western governments), we were greeted with a fresh conflict in the Middle East driven by Israel and Palestine.

All of the events this year have reiterated the basic investment principle of: “Don’t try to time the market”.

With that said, let us run through what happened to the market this year, the actions taken and also potential action that is to be taken moving into 2024.

Portfolio Funds Performances

On a fund level, all the funds that we’ve invested – apart from Asia & Money Market Fund – had registered double-digit annual returns as a result of returning investor confidence in the Western, Japan and India markets.

When looking at the 1-year return performances of the funds, two things can be inferred.

Firstly, diversification across the globe this year had paid off for investors investing in the global index rather than the S&P 500 as the contributions from having non-US exposures had helped produce additional returns beyond the S&P 500 alone.

Secondly, despite the return of investor confidence in the global markets, investor sentiment in Asia had continued to remain depressed resulting in continued poor performances in the Asia equity. Furthermore, the slight underperformance in the FPI Asian fund might be something to keep a lookout for (which I will be of course).

On a portfolio level, as a result of the strong recovery in global equities, the losses that we’ve incurred thus far as a result of Asia’s poor performances since 2021 have largely recovered. This demonstrated the importance and advantages of having a diversified portfolio, which will continue to be the cornerstone of our portfolio strategy.

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 recommendation in the last few years.

All that being said, bear in mind however that a single-year performance does not undermine the long-term track record of the funds and neither would it affect our long-term overarching strategy.

While it is true that Asia has not been having a good time since 2021 (drawdown of 47% between Feb 2021 to Oct 2022), its long-term economic growth trajectory has remained unchanged. As such, as long-term investors, we should focus on the long-term while having a good understanding of what may be causing the short-term performances to identify possible opportunities or threats to our long-term performances.

Moving on, let us take a look at how the markets have performed over the past 12 months.

Headlines That Moved The Market

To understand what is driving the short-term price action of the market, one must understand what are the common narratives that are affecting investors' confidence and decisions.

Unfortunately, despite having 195 countries around the world, the markets are usually often moved by the United States (70% representation in global markets) and China (57% representation in Asia ex Jap – including Taiwan and Hong Kong).

As such, here are some of the narratives, mainly around the US & China, that moved the market in 2023:

Jan: Microsoft invests $10b into Open AI – Positive

Jan: China re-opens and pivots away from zero COVID – Positive

Feb: Worsening US-China relationship over “Spy Balloon” – Negative

Feb: US Federal Reserve raised rates by 0.25% - Negative

Mar: Worsening US-China relationship over Taiwan - Negative

Mar: SVB Collapse and banking turmoil - Negative

Mar: US Federal Reserve raised rates by 0.25% - Negative

May: WHO declares end of COVID-19 emergency – Neutral

June: China stopped releasing youth jobless figures - Negative

June: US Federal Reserve remained rates unchanged – Positive

Aug: BRICS to expand in 2024 - Mixed

Sept: US Federal Reserve remained rates unchanged – Positive

Sept: Fears over China Evergrande resurfaced - Negative

Oct: Start of Israel and Hamas war - Negative

Nov: Xi Jing Ping's first US visit since 2017 - Positive

Nov: US Federal Reserve had hinted on the end of their rate hike – Positive

Nov: China 2023 Growth target within reach - Positive

Dec: Shipping firms suspend Red Sea activity - Negative

Global Equities (S&P500)

In 2023, the S&P 500 had almost recovered all the losses that it suffered back in 2022. While headline returns in 2023 are a warm welcome for all investors, one may wonder if the returns are indeed sustainable as upon closer inspection, you will realise that the bulk of the returns this year had been driven by the 7 Tech companies (a.k.a Magnificent 7) which accounts for more than 30% in the S&P 500 index.

The spectacular returns from the magnificent 7 are a result of the reignited hype over Artificial Intelligence which many investors are expecting to be the next leg for economic growth.

While some of the expectations towards artificial intelligence are justifiable, the detachment of the price performance for the top 7 companies and the remaining 493 companies is a cause of concern given that all trends tend to die down at some point in time and this time is not any different.

As such, investors should understand that while fantastic, the returns that we’ve seen in 2023 should not be the norm that we should expect moving into 2024 as that would mark the start of a market bubble – similar to the dot-com bubble that we’ve experienced as the world got hyped over the internet revolution.

Asia Equities (MSCI AC Asia Ex Jap)

In 2024, the Asia market experienced large swings and volatility throughout the year but ended the year pretty much flat.

The bulk of the volatility experienced in Asia is largely driven by the constant switch between fear and hope revolving around China’s economic and political developments as it often spills over to the region.

While the fears revolving around China’s economic woes are not unfounded, they are often exaggerated (for economic and political reasons) by the mainstream narrative which is the main cause of pessimism as investors tend to avoid uncertainty.

Fundamentally, Asia continues to fuel global growth but the headwinds due to the high interest rate environment and a strong USD had taken a toll on corporate earnings in the form of higher borrowing costs and foreign exchange losses.

That being said, valuations continue to be depressed and while the recovery has yet to materialize in 2023, equity prices have at least found strong support and stopped falling further as of now. For Asia equity to recover, investors should pay attention and watch out for supportive policies, upbeat growth and geo-political stabilization in 2024.

While the first 2 factors may materialise in 2024, it is unlikely that we will see a stable geo-political situation given that 2024 is an election year for major economies and more often than not, election years tend to introduce more geo-political instability and tensions as politicians continue to bash on China as an easy target to win political favour.

Actions Taken in 2023 & Potential Actions Ahead

With all that being said and done, let us examine what actions were taken this year and potentially what actions could you expect moving into 2024.

iFast Portfolio

For the iFast portfolio, in October 2023, I initiated a trade to change the portfolio’s long-term strategic asset allocation and introduced a third equity fund to reduce our overall China exposure.

The reason for such a move is to reflect a new post-COVID reality and amend our portfolio allocation to reflect a more accurate picture of future economic growth drivers.

I’ve documented the basis and logic behind the trade in the following two articles which I would assume that all of you had read before approving my trade back in October.

Read more: Market Updates: A Divided Market

Moving forward, two potential actions may materialize in 2024 should the opportunity arise.

The first is to finally inject the last phase of the funds that was previously sidelined in 2021 but had yet to be re-invested due to unfavourable prices. That said, for us to inject the side-lined funds, the market must have either recovered fundamentally or prices would have to come down further.

(If you’ve started investing with me since 2021, unfortunately, this does not affect you as there was no risk to manage given that you’ve just started investing)

The second is to rebalance our overall portfolio to the strategic long-term asset allocation as currently, our portfolio is still currently in our tactical short-term asset allocation – which is heavier on Emerging Market and Asia equity exposure. That said, for that to happen, the valuations for Global Equity have to come back down to their normal levels.

In addition, should the price of global equity continue to perform as it did this year, I may initiate a trade to take some profit from our global equity exposure as more likely than not, such a speculative price action may not be sustainable without having a corresponding fundamental growth of the same proportion.

FPI Portfolio

Unlike the iFast portfolio, no action was taken for the FPI portfolio in 2023 as the underlying allocation of the portfolio is already well diversified and balanced across regions and investment styles. As such, there is no need to make changes to the existing asset allocation given its current adherence to our long-term strategic asset allocation.

Moving forward, I may consider introducing another Asian fund into the mix to lower the overall management risk. If any, such a move will probably be made in the second half of 2024 as I would like to examine the market situation as well as the fund performances further before making any conclusion.

Final Message

While the performances of the portfolio have not been speculator nor promised as a result of the poor investor sentiment leading to the “Sell Asia” narrative since 2021, I hope that as fellow long-term investors, we can learn to see the larger picture and keep our eyes on the prize which will materialize inevitably in the long run.

Believe me when I say that I understand the frustration of looking at paper losses in our portfolio year after year as our portfolio is identical (I do not recommend things that I do not invest in). That said, I also hope that you would have faith in my strategy and believe me when I say that I’ve done what we possibly could to position ourselves to capture Asia's long-term economic growth and development.

Any further action would not yield any material benefits apart from providing emotional comfort, plausibly at the expense of our future performances as the markets recover. As the age-old saying goes – Your money is like a bar of soap. The more you handle it, the less you'll have.

Hang tight and may we see a better 2024. If you have any questions, please contact me directly instead of keeping it in, I'll be happy to meet and address your concerns.

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

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