StashAway Announces Re-Optimisation Exercise To Hedge Against Stagflation

Alex Cheong Pui Yin

21st December 2022 - 3 min read

Robo-advisor StashAway has notified its investors that it is carrying out another re-optimisation exercise for their portfolios, this time to add protection in “an environment of contracting growth and high, but slowing inflation”.

In its notice, StashAway explained that this decision to re-optimise was made because the global economy has entered into a phase of stagflation. Essentially, this refers to a situation where inflation is high (although it is starting to decline), and growth is negative and contracting. This is a shift from the previous state of inflationary growth, which had persisted for most of 2022.

As such, StashAway clients’ portfolio will be re-optimised to cater to this shift in growth and inflation, with the following steps to be taken:

Increased exposure to fixed income assets and bonds: These include short-duration US Treasury Bills, as well as US and global investment grade bonds. Short-duration assets have shown higher yields in comparison to the beginning of the year, and are relatively low-risk. Historically, bonds are also shown to outperform equities in economic downturns.

Adjusted equity allocation in favour of defensive sectors: Your portfolio will have reduced exposure to cyclical sectors such as energy and financials, as well as commodity exporters like Australia and Canada. Instead, it will see an increased exposure in sectors such as healthcare as these are likely to stay resilient regardless of the state of economy.

StashAway is also increasing your portfolio to emerging economies like India, Taiwan, and China through a broad-based emerging market exchange traded fund (ETF). This is as these economies are once again becoming more appealing, after a long period of being weighed down by monetary policy constraints, Covid-19 movement restrictions, and a strong US currency.

Maintained exposure to gold: Gold in balanced continues to serve as a protective asset due to its low correlation to stock and bond prices (therefore not affected by its ups and downs). Additionally, gold may benefit in the upcoming months if the US dollar keeps weakening.

Note that these changes above will only apply to the General Investing (powered by StashAway), Responsible Investing, and Domestic Ringgit Borrowings (DRB) portfolios. Meanwhile, the General Investing (powered by BlackRock) portfolio continues to be managed by BlackRock’s investment team.

As for StashAway investors who opted for Thematic Portfolios, you will see the following changes instead:

Thematic portfolio	Changes
Technology Enablers	– Increased exposure to protective assets in lower-risk Technology Enablers portfolios – Added exposure to the semiconductor sector as it is populated by relative mature companies with consistent cash flow
Future of Consumer Tech	– Increased exposure to protective assets in lower-risk Future of Consumer Tech portfolios – Increased allocation to the autonomous and electric vehicles sector, as well as video gaming and e-sports
Healthcare Innovation	Increased exposure to broader industry ETFs for lower-risk portfolios, including those in medical devices, global healthcare, and pharmaceutical sectors
Environment and Cleantech	No significant changes; already defensively positioned

Finally, StashAway cautioned that more economic uncertainty and market volatility are expected in upcoming months due to the continued impact of central bank policy tightening. “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,” it said, referring to its proprietary Economic Regime-Based Asset Allocation (ERAA) framework.

StashAway’s last re-optimisation exercise took place back in March 2022, made in view of possible new sanctions brought on by the Russia-Ukraine conflict. Prior to that, several such exercises were also done to accommodate economic changes due to the Covid-19 pandemic.

(Source: StashAway)

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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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