One of the core tenets of Providend’s Investment Philosophy is that we have a long-term focus. This means that we stay invested to capture the long-term asset class returns. We do not trade the portfolio to avoid a short-term negative drawdown (by trying to sell out before a market crash). Neither do we trade the portfolio to try capture excess returns (by timing the bottom of the market and buying in). Another tenet is that we believe in diversification to both reduce risk and capture higher returns. We do not try to pick winning stocks or sectors for various periods in time but focus on staying diversified so that we are always holding the best performing stocks for any period.
This is because it is very hard to be consistently right when timing the market or when trying to pick the best performing stocks or sectors.
After a relief rally in April, it might have been tempting to “sell in May and go away” and de-risk the portfolio in face of the continued uncertainty over the pandemic and economic situation. That would have not been a very optimal investment strategy though.
Just as quickly as the pessimism over the pandemic and the economic crisis that the lockdowns would cause hit the markets in March, there is now a sudden optimism as countries start to exit various stages of lockdown, and economic activity picks up. Let us look at the market performance in May below.
Exhibit 1: May 2020 returns (USD)
Overall, we see a continued recovery of global equities as the lockdowns ease and economic activity resumes.
We can take a closer look at the data to see what is driving the recovery in the stock market. On a cross sectional view, we can look deeper into the sector components of the S&P 500.
Again, it is worth highlighting that the diversification in our portfolios allows us to benefit from the rally in Tech, but also from the recent bounce in materials and consumer discretionary stocks too!
In fact, the added diversification of the Dimensional Funds made for outperformance in the month of May, as the Global Core Equity Fund in our portfolios beat both the MSCI World and S&P 500 Index (Which are in our Index tracking portfolios comprised of Vanguard funds). The Global Core Equity Fund holds over 7,000 stocks as compared to the Vanguard Global Stock Index fund which has 1,660 stocks in comparison. This diversification, along with tilts to lower relative price stocks and smaller companies has added to the performance of the fund this month.
Staying invested and staying diversified lets you get the returns you need for your financial goals. By staying invested, you avoided time out of the market and experienced the rebound in the stock markets in April and May. It is hard to predict when rebounds happen (or when markets crash for that matter). By staying diversified, you capture the returns not just from one market or stock, but from the best performing markets of any period. If you feel concerned for the dismal performance of Singapore stocks so far, the good news is that June is turning out to be a strong month for Singapore stocks. The buzz today (3rd June 2020) as this note is being written is all about DBS, the largest weight in the MSCI Singapore and the Straits Times Index going up 7.87%! Before you ask, yes as our portfolios are diversified, we hold Singapore stocks too and DBS is one of them.
June marks the end of the circuit breaker in Singapore, and as people return to work and life starts to adjust to the post circuit breaker normal, uncertainty does not go away easily. There is the constant concern about a second wave of the pandemic striking, which might cause further economic disruption.
Our advice for investing during the pandemic (apart from remaining invested and diversified!) is to make sure your financial plan suits your current situation. At Providend, we guide our clients to invest to achieve their financial goals, but the first thing to do after setting goals, is to have a plan to reach that goal. That is where our planning and advice takes centre stage, and we encourage you to reach out and have a discussion with your adviser about your plan to update them on your current economic circumstances if they have changed due to the pandemic, or discuss if your goals have changed. One thing is for certain, your adviser is there for you in these uncertain times.
Solutions & Investment Team
We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current estate plan, investment portfolio, financial and/or retirement plan, make an appointment with us today.