Analysis - StashAway Reoptimization (July 2021)

StashAway Malaysia has decided to conduct another round of portfolio re-optimization amidst the changing environment. You can read their original article here but to sum it up, they believe that while the U.S. indices are skyrocketing right now, it does seem that inflation in the U.S. is starting to speed up from its current figure of 5.4% p.a. in June 2021.

   To paraphrase a page from the "Intelligent Investor by Benjamin Graham", when inflation shot above 6%, stocks stank. The stock market lost money in 8 of the 14 years in which inflation exceeded 6%; the average real return for those 14 years was a measly 2.6%. While mild inflation allows companies to pass the increased costs of their own raw materials on to customers, high inflation wreaks havoc - forcing customers to slash their purchases and depressing activity throughout the economy.

   So StashAway Malaysia has decided to re-optimise the aggressive 36% portfolio as follows:

• Consumer Staples (XLP), Energy (XLE), REITS (VNQ & VNQI), Precious Metals (GLD) & US High Grade Bonds (AGG): These stock types have historically proven to perform very well (vs the stock market) in times of high inflation. You will notice they are commodity or 'basic necessity' type of stocks.
• Australia (EWA): What better way to capture commodity returns than investing in a commodity-exporting country?
• Small Cap (IJR): This is more to do with capturing the momentum rather than the inflation returns. Value stocks have been in the shadows of growth stocks for a few years. Now that value stock is back in the spotlight again, they foresee this to trend for quite a while to make up for lost times (vs growth stocks).
• China Tech (KWEB): This is more to do with capturing the potential rather than the inflation returns. With a population of 1.4 billion, rapidly growing economy and laser focus on becoming a technology superpower, it only makes sense to keep invested in this ETF.

As for my opinion, I don't actually have one. I mean, I am pretty glad that they did not give up on KWEB despite their horrible run in year 2021. KWEB is a high risk, high reward ETF which I don't mind holding on for a while. As for the overall strategy, it does makes sense but only if their prediction that the inflation will continue to rise to uncontrollable levels comes true.