With all the options available and an uncertain economy out there, find out how you should position your portfolios and make your money work for you.

Emerging Market is certainly in a better position now to withstand such shocks with a more resilient economy and stronger buffers.

Before investors jump into anything, it is imperative that one takes a look first at their portfolio to assess their allocation and see if they have taken more risk than they intended in the year.

So, where would I invest in 2019?

This can be a simple yet mind-boggling question.

Chan Ai Mei, Chief Marketing & Distribution Officer of Affin Hwang Asset Management shares her views with Smart Investor.

Smart Investor (SI): What is the market outlook for 2019, in particular for the unit trust industry?

Chan Ai Mei (CAM): For context, taking a look first at 2018 it was – by all measures – a reset year.

Not only of markets as volatility jolts due to ramping-up of trade tensions and rising interest rates, but also of investors’ expectations on risk and returns.

In 2018, we saw Emerging markets (EMs) bearing the brunt of a global selloff as investors ploughed back money into the US on signs of quicker growth, higher rates and a stronger US dollar.

EMs were also pressured largely due to concerns surrounding weakness in EM currencies and trade which was a key overhang of markets last year.

Economic momentum and earnings growth have also softened within EMs.

While the US economy continues to outperform the rest of the world, data points are starting to show that the growth differential is starting to narrow.

These themes may continue to recur throughout 2019 with the next key risk stemming from rising interest rates as the US Federal Reserve marches on with its rate hike cycle.

A stronger greenback may exert pressure on Ems by making them vulnerable to outflows. Nonetheless, EMs are certainly in a better position now to withstand such shocks with a more resilient economy and stronger buffers.

For EM investors, post this year’s correction, we see expectations being pared down after having recorded high double-digit returns in the past. Valuations have also corrected to more palatable levels.

Against this backdrop, we believe that EM investors are now able to stomach a higher amount of risk, especially after such a turbulent year and are more willing to stay invested in the long term.

As such, we continue to see growth opportunities within the industry and also demand from a new pool of investors who are more digitally-savvy and connected.

This is an area which we are excited about and see tremendous opportunities to enhance our clients’ experience and get them excited about investing.

SI: Against this backdrop, how would you advise investors to position their portfolios next year to navigate markets?

CAM: A new year presents new opportunities. But before investors jump into anything, it is imperative that one takes a look first at their portfolio to assess their allocation and see if they have taken more risk than they intended in the year.

There is a process called ‘rebalancing’ which you can think of as an annual tune-up for your portfolio (as in servicing your car) every year.

Essentially, rebalancing helps restore the percentage of each respective asset class weightage in your portfolio to its original target allocation.

This is because the weightage of each asset class will fluctuate during the year according to market movements that would thus impact the value of the underlying funds.

For example, if the equity funds of your portfolio outperformed last year, then you may find that the percentage holding of your equity funds will be higher than at the start of the year.

This could render an investor’s portfolio riskier than originally intended as equities are a riskier asset class.

Thus, rebalancing help investors stay on track to meet their objectives and ensure their current portfolio allocation matches one risk-appetite by correcting any portfolio drifts.

Sometimes that would mean reducing risk by adding exposure to more conservative asset classes like fixed income or adding more risk by increasing exposure to equities.

During the rebalancing process, an investor should also take the opportunity to assess each component in the portfolio and consider its asset mix to see how further diversification can be achieved.

For their core holdings, an investor should consider if they are sufficiently diversified across different asset class, geographical exposure and sectors. Investors rely on their core holdings as a bedrock of their portfolio and it should appropriately match his risk-profile through a mixture of stocks and bonds exhibiting growth and income attributes.

Also, setting aside some tactical exposure which is the component of a portfolio that has to be actively managed, an investor may want to take a view of the market to scope out opportunities and amplify returns.

For instance, an investor could consider allocating a portion towards local consumption and healthcare stocks which may benefit from various policies introduced by the government targeted at the B40 income group.

SI: Also, how about the ultra-high net-worth individuals? What is in store for them in 2019?

CAM: For high net worth individuals (HNWI), we believe their need for stable returns has become more salient especially given last year’s market volatility. Most HNWI investment objectives are tilted towards capital preservation and having a stable income stream or even just modest returns.

For those seeking out opportunities for higher returns and looking to deploy aggressively, alternatives like private equity or debt may be more appealing. Alternative asset classes including commodities, private equity, real estate or derivatives can be valuable sources of diversification especially as correlation between traditional asset classes and different markets converge and move in the same direction.

ABOUT THE AUTHOR


Chan Ai Mei, Chief Marketing & Distribution Officer of Affin Hwang Asset Management shares her views with Smart Investor.

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