2022 has been a challenging year for investors: The world’s economic situation has changed abruptly and significantly in the past few months, and both the stock and bond markets have seen negative returns.
We understand that seeing your investments decline in a market downturn can be unnerving – especially if this is your first bear market! But during these times, it's even more important to tune out the market noise and stay the course.
Don’t forget that the typical 30-year journey to retirement could involve 4 to 5 bear markets and 20 to 25 corrections. You can't avoid these market swings. You simply need to prepare for them by investing in a diversified portfolio that targets the level of risk appropriate for you.
Here, we share details about how our ERAA® portfolios have performed in this environment and since our launch in 2017.
Our balanced and lower-risk portfolios have outperformed their benchmarks by an annualised 0.9% to 3.1% since launch. Our higher risk portfolios were the exception – their exposure to Chinese internet stocks dragged on performance in 2021. You can see the data in the following chart, and in the next one you will find performance for each calendar year.
On an annual basis, the majority of our portfolios outperformed their same-risk benchmarks in 4 out of 5 calendar years. Below, the periods of positive performance vs benchmarks across the years are highlighted in dark blue.
In a volatile environment where the stock and bond markets have both fallen, our portfolios have outperformed their benchmarks across all risk levels. This highlights the superior downside protection ERAA® provides. For another example of how our portfolios fared through unprecedented volatility, you can read about ERAA®’s performance in 2020, through the COVID crash and subsequent market recovery.
In March this year, we reoptimised ERAA® portfolios to minimise their exposure to US-listed Chinese assets. Our investment committee made this exceptional decision because of the increased risk of secondary sanctions against China amid the Russia-Ukraine war and because of the extraordinary volatility that this exposure was bringing to portfolios. After this reoptimisation, all of our portfolios have outperformed their same-risk benchmarks, as shown in the chart below.
ERAA® portfolio allocations continue to be driven by a systematic investment strategy, which has been the cornerstone of our strong multi-year performance.
During times of short-term volatility, we recommend that you maintain a long-term perspective and stick to your appropriate risk profile. If you listened to the media, you would have stayed out of the market for most of the last 30 years, jeopardising your long-term financial goals.
Remember, time in the market, not timing the market, is the rallying cry.
Our same-risk benchmarks are proxied by MSCI World Equity Index (for equities) and FTSE World Government Bond Index (for bonds). The benchmarks we use have the same 10-years realised volatility as our portfolios.
Model portfolio returns are expressed in gross terms before fees, withholding taxes, and reclaims on dividends. They are provided only as a gauge of pure performance before other items.
Actual account returns may deviate from the model portfolios due to differences in the timing of trade execution (e.g. during the day vs close), timing differences and intraday volatility of reoptimisation and re-balancing, fees, dividend taxes and reclaims, etc. All returns are in USD terms.
The inception date for portfolios with SRI 6.5%, 8%, 10%, 12%, 14%, 16%, 18%, and 20% is 19 July 2017; the inception date for portfolios with SRIs of 26%, 30%, and 36% is 16 August 2018; the inception date for the portfolio with SRI 22% is 15 August 2019.
Past performance is not a guarantee for future returns. Before investing, investors should carefully consider investment objectives, risks, charges and expenses, and if need be, seek independent professional advice.