StashAway Announces Re-Optimisation Exercise For Inflationary Growth

Alex Cheong Pui Yin

24th April 2024 - 5 min read

StashAway has announced that it will be re-optimising its clients’ portfolios to take advantage of the new shift in the macroeconomic environment, as it moves from a state of stagflation to inflationary growth. This will involve several adjustments, including an increased allocation to growth assets and the introduction of new exchange-traded funds (ETFs).

In its notice to customers, StashAway explained that the global economy has seen some recovery since it last conducted a re-optimisation exercise back in December 2022. Among other things, manufacturing activity has gradually recovered and returned to positive growth, while inflation has eased off from its peak (although it still remains relatively high as compared to previous recorded rates).

Consequently, this has prompted StashAway to revise the position of the market in its proprietary investment framework ERAA, noting that it has moved from the Stagflation regime back to the Inflationary Growth regime. This essentially refers to a circumstance where “inflation remains high and growth is both positive and on an upwards trend”.

As such, StashAway is re-optimising its clients’ portfolios to tap into the opportunities that may be found in this new regime, which would involve several key changes. Note, however, that these changes will only apply to StashAway’s General Investing, Thematic, and Responsible Investing portfolios; the BlackRock-powered General Investing portfolios are excluded from this exercise.

Increased allocation to growth assets

Chief of all, clients can expect to see increased allocations to growth assets, as detailed below:

Assets	Changes
Equities	– Increased allocation in equities across all portfolios – Equities tend to pose lower risk during Inflationary Growth regime, and offer better returns, comparatively
Bonds	Increased allocation in high-yield and emerging market bonds
Ultra-short US Treasuries	Reduced allocation in ultra-short-dated US Treasury bonds, particularly for lower-risk portfolios
Gold	– Reduced allocation in gold in most portfolios – That said, ERAA believes that the asset can outperform its market benchmark, benefitting from falling real interest rates

Inclusion of new ETFs

In addition to this, StashAway said that it is also adding three new ETFs to portfolios to enhance the way they gain exposure to the US and India, focusing specifically on these specific areas:

New ETFs	Details/Justification
Equal-weight S&P 500 ETF	– The S&P is currently heavily concentrated in stocks with the highest market capitalisation, such as the Magnificent Seven (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta, and Tesla) – An equal-weight S&P 500 ETF is added to mitigate this concentration risk and to maintain a well-diversified exposure to the US market
ETFs in US defence and aerospace	– Introduced to hedge against ongoing geopolitical conflict – Includes many industrial companies, and can perform well in a regime of stronger economic growth
ETFs with exposure to India	– StashAway’s ERAA sees growth potential in India, and is therefore introducing an ETF to target direct exposure to the country, instead of using an emerging markets grouping.

Changes in equity allocations

As mentioned earlier, investors will see an increase in allocation for equities (as a growth asset) following this re-optimisation exercise. Complementing this move is also StashAway’s decision to move its Japan equity exposure to a new ETF with a lower expense ratio. Specifically, the current iShares MSCI Japan ETF (with a 0.5% expense ratio) will be replaced by the JPMorgan BetaBuilders Japan ETF (with a 0.19% expense ratio).

On top of that, higher-risk portfolios will feature increased exposure to India, with up to 3% additional allocation. Meanwhile, ERAA is maintaining an equal-weight exposure in China because it believes that the region may experience a positive shift in the future despite its current stagnated economic growth.

Aside from that, there will also be changes in equity allocations sector-wise. StashAway will pare back allocations to healthcare, increasing it for consumer and industrial sectors instead. Additionally, ERAA is maintaining its market weight in the tech sector as advances in AI are likely to continue driving performance for tech over the longer term.

Changes to bond and thematic allocations

For lower-risk portfolios, the weightage to higher-yielding bonds will be increased. This refers to bonds from the industrial sector and from emerging markets. StashAway said that this positions investors for optimised returns while keeping risk levels in check.

As for Thematic portfolios, the following changes will be made for the Technology Enablers and Future of Consumer Tech portfolios, specifically:

Reduced allocation for non-thematic instruments that were previously included to reduce risk
Increased allocation to core thematic holdings
Current ETF that provides exposure to Internet-related companies will be replaced as it contains allocation to a crypto ETF (which is currently not permitted for retail investors under Malaysia’s regulations). This new ETF is also cheaper.

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StashAway reiterated that this re-optimisation will be carried out automatically, and investors are not required to do anything. It also comes at no additional cost to them.

“All in all, this re-optimisation sets up your portfolios to benefit from a new regime of higher growth. But macroeconomic conditions are always shifting – it’s why we built ERAA to ensure that your portfolios are managed for each stage of the economic cycle. Our framework will continue to monitor the data, and guide our allocations,” StashAway stated, adding that it will continue to keep investors informed.

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Alex Cheong Pui Yin

Previously covered recruitment-related stories and had a short stint as a copywriter for the property industry. She subsequently developed an interest in investment and robo-advisors.

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