[Portfolio Updates] Introduction Of 4th Fund For FPI Portfolio

This article is only for clients investing in the FPI portfolio I am managing.

What are the changes?

This round of changes would affect the 40% Asian equity exposure in our portfolio.

Currently in the portfolio, FSSA Asian Equity Plus is the only fund that provides the Asian equity exposure necessary. To further diversify the portfolio, I recommend the introduction of a secondary Asian equity fund: Invesco Asian Equity Fund.

Post changes, the overall exposure of our Asian equity allocation would remain unchanged at 40% with both funds taking up 20% each within the portfolio.

Please log in to your FPI Account (www.fpinternational.sg) and approve the trade within 7 days thank you.

Rationale of changes

The reason for the introduction of a second Asian equity fund instead of solely relying on the existing FSSA Asian Equity Plus is to further diversify the management risk while retaining the overall portfolio allocation to the Asia region.

From my observation of the price performances over the last 10 years, while the behaviour of the two funds is highly correlated, there are times when minor outperformance would occur between the funds due to the unique situation and investor preferences during the respective period.

The reason for the differing performances during the different periods can be attributed to the different styles of the funds which is summarized in the figure below:

While both funds invest in large capitalization companies, the core difference between the two funds largely comes from their investment management style.

The current fund (FSSA Asian Equity Plus) adopts a growth-oriented approach while the proposed fund (Invesco Asian Equity) adopts a value-oriented approach.

Expectation Moving Forward

With the introduction of the new fund, in the short run, we can expect the overall volatility of the Asian exposure in our portfolio to be further reduced as the outperformance of one fund will negate the underperformance of another during differing periods where either growth or value approach is more favoured.

In the long run, we can expect the performance of both funds to converge and revert to their long-term averages and produce the actual returns derived from the underlying economic growth of the region itself.

Doing so ensures that the portfolio continues to be well positioned for the underlying economic growth of the Asia region without being negatively affected by any short-term investment style preferences as we’re essentially diversifying away our risk from either of the management style by having an equal weightage between value and growth.

Sticking to 40% Exposure in Asia

Since the inception of the portfolio back in 2021, Asian equities have faced nothing but headwinds which have caused their share prices to experience high levels of volatility while remaining relatively unchanged while Western equities have seen a significant run-up at the back of a higher risk on attitude and a flight to safety from the developing markets to the developed markets.

While some of yall have voiced out your suggestions to overweigh on the western market given the recent run-up, I’ll advise against chasing after short-term returns and instead focus on the primary objective of why the portfolio was started in the first place – to invest over a long term for our retirement financing.

As our focus is on what would transpire at the end of 15 to 20 years, I will retain my original portfolio allocation which ultimately provides around 60% exposure in the Western market and 40% in the Asian market.

It wouldn’t make sense for us to increase our exposure to Western equities at a point where valuations are stretched while reducing our exposure in Asia where the long-term growth prospects continue to remain strong. (In other words, don’t buy high and sell low)

While the short-term headwind faced by the Asian economies is undeniable – especially so after Trump's election – these events will pass as well.

As and when the economic headwind of Asia gets addressed and the market recovers, it will be a mistake to not be invested then as the recovery and crashes in Asian equities are often more extreme as compared to the Western equities.

I’ll shed more light on the topic again in our 2025 Market Outlook and 2024 Portfolio Review which will be sent to you at the beginning of 2025.

Meanwhile, please log in and approve the trade. Do PM me should you need more clarification.

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

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