INTRODUCTION
The LionGlobal All Seasons Funds (Standard and Growth) were set up in 2018 with the aim of helping investors tide through all seasons of market volatility. Using similar building blocks but employing different asset construction, the LionGlobal All Seasons Standard Fund targets a below average level of portfolio risk (70% Bonds, 30% Equities) while the LionGlobal All Seasons Growth Fund targets an above average level of portfolio risk (30% Bonds, 70% Equities).
LionGlobal All Seasons Fund (Standard and Growth) – Asset Construction
In view of the changing investment climate, this article highlights the tactical asset allocation adjustment that we have made to both funds while maintaining diversification across asset classes and regions.
MACRO – A RISING TIDE SHOULD LIFT ALL BOATS
2023 saw a strong start to global markets performance, fueled by i) China’s reopening; ii) Europe’s mild weather; iii) better US inflation data sparking optimism that the Fed can now engineer a “soft landing”. The latest FOMC meeting on 1 February 2023 also suggests that while there is more work to be done to bring down inflation and further interest rate increases are required, the process of disinflation has begun. This stands in stark contrast to the bearishness that prevailed late last year. We are of the view that peak inflation is behind us and will decline on the back of base effect from energy shock, softer consumer demand and impact of aggressive central bank hikes. That said, core inflation levels are unlikely to meet central banks targets until 2024/25 as demand for services reverts to pre-COVID levels and wages rise. On the growth front, we believe that a reopened and rejuvenated China is likely to provide a significant global demand lift, pushing the risk of a global recession to 2H2023 or early 2024. We also expect its growth to spillover and set off a growth wave across Asia.
EQUITIES – WHEN THE US SNEEZES, THE WORLD CATCHES A COLD
We remain muted on Global Equities due to unattractive valuations versus Global Bonds, except in Japan. Most markets are trading at fair to attractive versus their historical mean. MSCI US and MSCI AC Asia Pacific ex-Japan are currently trading close to/at their historical mean (charts below). While equity markets have rallied on easing inflationary pressures, lower inflation means lower revenue growth, and weaker corporate pricing power that translates into lower margins. Should earnings be continually revised downwards, the current rally may catch a pause after 1Q2023.
MSCI US and MSCI AC Asia Pacific ex-Japan are currently trading close to/at their historical mean
Source: Refinitiv Datastream, 13 January 2023
That said, pockets of investment opportunities remain. We have turned cautiously optimistic on Asia equities, and positive on China. China saw a swift reopening and the equity market has recovered remarkably from its October troughs. The government has put forth several pro-growth policies – for example, measures have been taken to stabilize and support the property sector, while the regulatory crackdown on Big Tech seems to be nearer its end. High frequency data over Chinese New Year holiday and January PMI indicates that China’s macro recovery looks to be on track. Indeed, investors’ sentiment (as have ours) have shifted meaningfully along the positive spectrum.
BONDS – BONDS ARE BACK
2022 was amongst the worst year for Asian credit markets for two decades, as Asia Investment Grade (IG) and High Yield (HY) sold off on rising underlying US interest rates. We are positive on 2023 Asian credits given a low base, re-opening of China, moderating inflation and capital markets recovering. Indeed, IG credit funds have seen a strong inflow year-to-date (YTD), reversing their outflows in 2022. More clarity on the path of inflation as well as peak rates policy may help to abate current market volatility. China’s reopening and policy support for its property sector have provided tailwinds to both IG and HY space. Although Asian IG spreads are currently close to a 3-year low, the all-in yields remain high, providing an attractive risk-reward proposition. Bearing in mind the possibility that US enters a recession in 2H2023 or early 2024, we have shifted our inclination towards longer duration versus short duration.
COMMODITIES – LONG-TERM TIGHTNESS
We added exposure to commodities in 2H2022 to combat the stubbornly high global inflation in an environment of tight global supply. We believe that commodity prices will be driven by optimism towards improved economic activity in China, offset by concerns around potential global slowdown. Low inventory levels across the commodity complex should be supportive for prices, while the low capex spend and underinvestment in exploration and development should underpin the long-term demand-supply fundamentals for many of the “old economy” commodities. We maintain similar exposure to the commodities space.
KEY RISKS – STAY MINDFUL
We see several key risks on the horizon that may change our investment thesis. It may be premature to conclude the longevity and magnitude of the current “goldilocks” situation (falling inflation, easing financial conditions and reopening of China). First, central banks may overtighten, leading to a deeper recession. Second, inflation turns out to be stickier than expected, driven by elevated input costs of wages. Third, geopolitical tension continues to shake our increasingly deglobalizing world, causing more supply chain disruptions.
Disclaimer
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation for the purchase or sale of any capital markets products or investments and does not have regard to your specific investment objectives, financial situation, tax position or needs.
You should read the prospectus and Product Highlights Sheet of the relevant fund which are available and may be obtained from Lion Global Investors Limited (“LGI”) or any of its distributors, for further details including the risk factors and consider if a fund is suitable for you and seek such advice from a financial adviser if necessary, before deciding whether to invest in the fund. Applications for units in our funds must be made on forms accompanying the prospectus.
Investments in our funds are not obligations of, deposits in, guaranteed or insured by LGI or any of its affiliates and are subject to investment risks including the possible loss of the principal amount invested. The performance of a fund is not guaranteed and the value of units in a fund and the income accruing to the units, if any, may rise or fall. Past performance, payout yields and payments as well as any predictions, projections, or forecasts are not necessarily indicative of the future or likely performance, payout yields and payments of a fund. Any extraordinary performance may be due to exceptional circumstances which may not be sustainable. Dividend distributions, which may be either out of income and/or capital, are not guaranteed and subject to LGI’s discretion. Any such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the fund. Any references to specific securities are for illustration purposes and are not to be considered as recommendations to buy or sell the securities. It should not be assumed that investment in such specific securities will be profitable. There can be no assurance that any of the allocations or holdings presented will remain in the fund at the time this information is presented.
Any information (which includes opinions, estimates, graphs, charts, formulae or devices) is subject to change or correction at any time without notice and is not to be relied on as advice. You are advised to conduct your own independent assessment and investigation of the relevance, accuracy, adequacy and reliability of any information or contained herein and seek professional advice on them. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information. The fund may, where permitted by the prospectus, invest in financial derivative instruments for hedging purposes or for the purpose of efficient portfolio management. LGI, its related companies, their directors and/or employees may hold units of a fund and be engaged in purchasing or selling units of a fund for themselves or their clients.
This publication is issued in Singapore ©Lion Global Investors® Limited (UEN/ Registration No. 198601745D). All rights reserved. LGI is a Singapore incorporated company, and is not related to any corporation or trading entity that is domiciled in Europe or the United States (other than entities owned by its holding companies).
