Winning the Trade War with a Diversification Strategy
The recent economic sabre-rattling between the US and China have upset the markets, with indexes shedding year-to-date gains as investors wake up to the reality that a full-blown trade war is a real possibility. So much so, that all major Emerging Market indexes have entered negative territory year to date.
Is your financial adviser worth his salt?
Optically, the S&P 500 is up year-to-date at 3.5%, which is already outperforming the rest of the world index which is sitting at 0.12%. Coupled with a strengthening US Dollar, it does seem like even the threat of a trade war is reaping benefits for the American market relative to the rest of the world.
Effects of a Trade War
However, digging a little deeper, we discover that small caps are doing even better. The Russell 2000 index, an index comprised of the smallest 2000 stocks in the Russell 3000 index, maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group, is up 9.99% year to date. Moreover, MSCI US Small Caps are up 8.36%. This suggests that investors expect that smaller companies with a stronger focus on the domestic economy will be able to weather the economic storm better than globally exposed MNC’s.
Locally, the STI Index went from being, at one point in 2018, the top performing major Asian index, to down -3.75% in SGD terms, and -5.40% in USD terms. The swing in fortunes has been sharp, sudden and drastic.
Here’s an effective way to get rich through your investment.
Here at Providend, you won’t find us in a panic. In fact, we are feeling comfortable with our asset allocation as:
- Our Index + portfolios are tilted toward small caps
- Our portfolios typically track global market capitalisation so have a decent exposure to US equities
- The USD has strengthened against SGD
Benefits of a Diversification Strategy
This is the power of diversification in action. We don’t simply peg ourselves to the local market, betting on a relatively small section of the world economy. We ensure that we are weighted correctly against the world. And in this case, with the US market as a whole, and small caps as a sector, outperforming most other indexes, we are confident in the asset allocation of our portfolios.
So, while the economic roller coaster is in full effect, sometimes, with the correct strategy in place, you can sit back, relax with a cup of coffee, comforted by the knowledge that you’ve done the right thing. And the only thing to do now is to plan for the more important things in life; the people and things you love.
If you are waiting for the right time to invest, the time is now
This is an original article contributed by the Editorial Team at Providend.
Providend is a licensed financial advisory firm and a registered fund management company with the Monetary Authority of Singapore.
Over the last 17 years, we have come to be known as a specialist in retirement planning and the first and probably still the only fee-only independent financial advisory firm in Singapore.
As a family of people driven by passion, we exist to serve our families of clients to fulfil their dreams and achieve their life purpose by providing them with the most honest, independent and competent advice.
For more information, you can reach Providend at [email protected] and 6309 2488.