How Professional Investors Are Making Changes To Their Portfolio

How Professional Investors Are Making Changes To Their Portfolio

What are some of the considerations professional investors take into account when making changes to their portfolios? Freddy Lim, Chief Investment Officer and Co-Founder at StashAway shares with Michelle Martin on Money and Me.

Michelle Martin: Can you give us a context of how often you make changes to the portfolios at StashAway?

Freddy Lim: The changes are strategic and are made for medium and long term. So when we make changes, it is [significant] thus it is unusual to see changes frequently.

MM: Help us understand what Quantitative Easing (QE) or the printing of money means. What happens to the value of the US Dollar when we have increased stimulus?

FL: This [value of dollar] is always a relative between two countries, so in this case, US against Singapore. You can’t just see Singapore as a smaller economy, [instead] you have to look at the percentage of GDP that is being printed. The US is massively printing money, more than what Singapore ever would. This created a lot of concern over the medium term on whether the US dollar will decline [detrimentally], much like the post-2008 financial crisis. Back then between 2009 and 2011, we've seen the US dollar drop by 22% against the Singapore dollar.

MM: Why are you looking to increase exposure in the Chinese technology sector specifically?

FL: The sector has proven itself in two ways. Firstly, it is significantly less volatile than even [for instance] S&P 500. During the Covid-19 market crash, S&P 500 dropped 35% [in comparison to] the China innovation sectors, which only dropped about 20%.

Secondly, China has proven that technology is at its heart [through] AI surveillance and its success in contact tracing and virus containment. It also goes to show and reinforce that China has spent so much [centralised effort] in technology.

So those things are a wake-up call for the world.

MM: What are the benefits of holding onto gold right now?

FL: I can go on for two days, but I’ll make it short. Gold is a great instrument to add to your portfolio to reduce risk. It protects you against a crash, it does well in inflation, or when paper money is being diluted [for instance] the massive printing of the US dollar.

MM: We've seen freshly-minted gold positions suffering a setback overnight just recently because of the rising hopes for a new Covid-19 vaccine. So, what is powering your long-term gold position?

FL: Look at it at a portfolio level instead of at a [single] line item – [for instance] gold may have gone down but the rest of the portfolio has risen, so at a portfolio level, we’re up. [Therefore] we are less volatile than before because of gold. So essentially, we are looking at diversification, risk control, keeping it in line with the users’ target when they set their goals.

MM: What are some mistakes investors were making [out of desperation or emotion] during one of the worst market corrections in 2018?

FL: [Most] investors [aim] to buy-low and sell-high, but it never really happens when they keep [monitoring] their accounts every day. [They tend to] react when the market drops [and end up] selling [at a low price]. When the market goes back up and they [gain confidence] again, they buy back [at a high price]. [So], those who withdrew during times of volatility (market correction) got ripped by the markets and [their portfolios] would have underperformed if they had reacted.

MM: What are some of the common investing practices that tend to happen during a market correction?

FL: Other than the over-reactors [withdrawing] out of desperation, some people tend to do the opposite – the more savvy ones will ask whether it is a good time to raise risk or change their financial plans and contribute more [so that] they can take advantage of the crash? My answer would be that [since] you have rigorously planned your portfolio with an advisor, it [should be] long term in nature, [for instance] for your retirement in 30 years’ time. So, why should a few quarters of the real world development change your plan?

Yes, the world has changed because of Covid-19, but that is my job to re-optimise your portfolio and diversify it so it’s less volatile. It is not your job to decide how much you wish to save or how much you want to invest. So in this case, it is about investing more and changing the risk level.

MM: In your opinion, where are global investors placing their bets now?

FL: We've seen some inflow in equities again in general. People are buying everything, [including] gold and bonds. I would say gold is [the most] attractive now and has attracted a lot of attention, but [no one can predict if] that may change.

MM: What should investors think about when recalibrating or rebalancing their portfolio?

FL: Stick to your investment plans, as these are crafted after considering your lifestyle, income and expenses. Your risk level and risk preferences wouldn't change. Your portfolio risk may change if you don't adjust, but [it is the] fund manager's job to navigate you so the last thing you want to do is a change of plans. So, stick to your financial plan.

Listen to the full podcast to find out more on Freddy Lim's take on investing in energy stocks:

Download the podcast.

For more, tune in to Your Money with Michelle Martin on weekdays from 9AM to 12NOON.
#YourMoney #MoneyandMe

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