Monthly Archives: December 2016

Investment Mistakes/Lessons in 2016

The oil play

At the end of 2015, I thought my cross-asset portfolio might suffer great loss if oil prices shot up that led to higher inflation expectation. Hence, I added an oil (futures) ETF to my portfolio for hedging purpose, even though back then I did not have strong conviction of a higher oil price. In retrospect, while it was macroeconomically sensible to add oil exposure to the portfolio, adding an oil ETF was not the best instrument to implement, as the contango in the oil futures curve erodes return of oil ETFs. Adding Russian equity, for instance, may have generated stronger return.

Brexit vote

Before the Brexit vote, I have completely got rid off UK equity exposure, on the assumption that it was pretty risky to take a politics bet with close to 50/50 chance, and we have a lot of sterling exposure outside of the cross-asset portfolio. I had also maintained 10%+ exposure to gold.

Zero UK equity exposure and relatively sizeable gold exposure did give some protection following the Brexit win, and adding Korea equity exposure right after the vote also helped maintain some favourable equity position. However, it was hard to take portfolio action against the extraordinary easing of BoE – the UK economy seemed to perform better than expected in H2 2016, supporting UK domestic equities. However, I am not sure how to time UK equity exposure given the uncertainty of the Brexit negotiation and the volatility of the sterling.

Trump win

It is still too early to say, for any trades taken after Trump win, whether they will pan out nicely in a few months. I significantly underweighted US equity before the election, which contributed to the underperformance of the portfolio following the Trump win that surprisingly give a strong support to the US equity, i.e. Trump disaster scenario did not happen. And my EM equity exposure got hit by Trump win, and so is my gold exposure.

Currency hedge for EZ and Japan equity

In retrospect, it was extremely challenging to decide the timing of taking a hedged vs unhedged position in EZ or Japan equity, even though it is generally true that EZ and Japan equity (in domestic currency) are negatively correlated with their respected home currency. In essence, it was extremely difficult to predict the movement of euro and yen. Hence I decide to take on unhedged EZ/Japan equity going forward, trying not to taking a currency view. What I also learn is that, if you think a country’s equity could only rise because of a currency depreciation, that means you actually don’t have strong conviction at call about that equity.


Leave a comment

Filed under Uncategorized