We’re Reoptimising Your Portfolios for Shifts in Growth and Inflation

20 December 2022

ERAA® is adding protection in an environment of contracting growth and high, but slowing, inflation.

To view the changes to your portfolio, check the inbox in the app.


Earlier this year, our investment framework, ERAA®, increased our global portfolio allocations to assets that tend to do better in environments of rising inflation. These assets included inflation-linked government bonds, commodities-focused equity markets such as Australia and Canada, and Gold.

These changes helped our General Investing Portfolios outperform their same-risk benchmarks across 10 out of 12 risk levels. From our reoptimisation in late January to end-November, our portfolios posted an average outperformance of 4 percentage points in MYR terms.  Read more about our previous reoptimisation.

We’re now in a stagflationary regime

For most of 2022, the global economy was in a state of high inflation and positive – but slowing – growth.

But aggressive interest rate hikes by most major central banks have started to work their way through the economy, and we’re beginning to see inflation ease off. Rapid monetary policy tightening has also raised recession risks. Within ERAA®’s 4-quadrant framework, we’re now in a stagflationary regime, where inflation is high (but starting to decline) and growth is negative and contracting.

As a result, ERAA® has triggered a reoptimisation to position your portfolios for the new economic regime. Read more about ERAA®.

What this reoptimisation means for your portfolios

The following changes apply to our General Investing powered by StashAway, Responsible Investing, and Domestic Ringgit Borrowings (DRB) Portfolios. The changes don’t apply to our BlackRock-powered General Investing portfolios: BlackRock’s investment team continues to advise the asset allocation for these portfolios. 

ERAA® continues to keep your risk exposure constant at your selected SRI level, while maximising long-term returns. Your global portfolios will now be positioned more defensively, with more protective assets to help navigate the new environment.  Here are the key changes you’ll see in your portfolios:

Increased exposure to bonds

As central banks including the US Federal Reserve continue to hike rates into 2023 (albeit at a slower pace), short-duration assets have become more important given their combination of higher yields compared with the start of the year and relatively lower risk. In addition, history shows that bonds tend to outperform equities in economic downturns, as investors tend to shun riskier assets in favour of safe havens like US Treasuries. 

As a result, ERAA® has increased exposure to fixed income assets in our medium- to lower-risk General Investing Portfolios. Most of our portfolios now have a higher allocation to short-duration US Treasury Bills and US and global investment grade bonds.

Adjusted equity allocation in favour of defensive sectors 

Within our equity allocations, ERAA® has reduced your portfolios’ exposure to cyclical sectors such as energy and financials. Similarly, it also reduced allocations to commodity exporters Australia and Canada. Against this, your portfolios now have greater exposure to defensive sectors, such as healthcare, that are likely to stay resilient regardless of the state of the economy. 

Separately, economic growth between developed markets (DMs)  and emerging markets (EMs) is expected to diverge in 2023. EMs, led by China, have been weighed down over the past year by monetary policy constraints, Covid-19 movement restrictions, and a strong USD. All these challenges now appear to be easing, and they are starting to show signs of a recovery. As EMs now look relatively attractive compared to DMs, ERAA® increased exposure to economies such as India, Taiwan, and China through a broad-based emerging market ETF. As a result, your global portfolios’ allocations to EM equities are now broadly in line with their same-risk benchmarks (so they’re neither over- nor under- weighted). 

Maintain exposure to Gold 

ERAA® continues to favour Gold as a protective asset in balanced portfolios, due to its low correlation to stock and bond prices. Your portfolios’ allocation to Gold contributed to overperformance this year, as the metal held up well despite a strong USD, outperforming both equities and bonds. In addition, Gold may benefit in the months ahead should the USD continue to weaken as the Fed downshifts its pace of rate hikes.

Source: Bloomberg, StashAway.

Read more about how Gold plays a role in your portfolios.

What the reoptimisation means for your Thematic Portfolios 

Technology Enablers

ERAA® increased exposure to protective assets in the lower-risk Technology Enablers portfolios. Our investment framework also added exposure to the semiconductor sector. The sector is made up of relatively mature companies that generate consistent cash flow – which allows them to take advantage of economic downturns to invest for the future. 

Future of Consumer Tech

ERAA® increased exposure to protective assets in the lower-risk Future of Consumer Tech portfolios. It also increased the portfolios’ allocation to the autonomous and electric vehicles, and video gaming and e-sports sectors, which have lower correlations with the portfolios’ other underlying assets. 

Healthcare Innovation

In the lower-risk portfolios, ERAA® increased exposure to broader industry ETFs – including those in the medical devices, global healthcare, and pharmaceutical sectors – in order to provide more broad-based exposure to the sector. 

Environment and Cleantech

ERAA® made no significant changes to the Environment and Cleantech portfolios, as they are already defensively positioned for the new economic environment. 

Your portfolios are well-positioned for 2023

The impact of central bank policy tightening will continue to filter through to the global economy in 2023 – and this tightening could spell more economic uncertainty and market volatility in the months ahead. As ERAA® monitors the latest market data and macroeconomic conditions, it’ll continue to optimise your portfolios to weather each stage of the economic cycle.  

To view the changes to your portfolios, simply check the inbox in the app.

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