DBS chief investment officer Hou Wey Fook suggested continued abidance to the mantra of not opposing the Federal Reserve amid unprecedented monetary loosening.
DBS’s Hou underlined that had investors made trades on the side of the Fed rather than in opposition, a large part of the 70 percent market appreciation from the lows of March last year would have been captured.
«In the eye of the pandemic in March, the Fed came out to say that they will launch [quantitative easing] infinity,» he said during a virtual meeting yesterday.
«Whenever the Fed comes out with such policies, my answer to my clients is: do not fight the Fed. Because the fed is the only entity in the world that can create U.S. dollars out of thin air.»
«Bull Markets are Born on Pessimism»
And moving forward in 2021, Hou believes the rally will remain sustainable, citing renowned British fund manager John Templeton’s quote that «bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria».
«Clearly [we are not] in euphoria stage,» he said, highlighting a historically unprecedented level of uninvested cash despite low to negative interest rates.
«Likely, we are between pessimism and skepticism. Therefore, we think this uptrend is sustainable.»
Barbell Strategy
DBS continues to advocate investors to adopt a barbell strategy for portfolios and focus on two main areas: income generators, like high yield bonds or dividend stocks, and companies that are riding the secular wave of long-term irreversible trends, like e-commerce or renewable energy.
According to Hou, DBS has an actual portfolio invested based on this strategy and it generated 19 percent returns last year and 6 percent alpha against a benchmark of global stocks and bonds.
Physical Gold
In light of ongoing loosening from central banks worldwide, Hou also highlighted the efficacy of gold as a diversifier not only due to its safe haven status but also its tendencies even during bull markets.
«in a down market for equities, it is negatively correlated. In an up market for equities, it, too, goes up. That’s the beauty of gold as an asset class within a portfolio of bonds and equities,» he said.
«Unlike USD, EUR, JPY or any other fiat currencies where there is unlimited supply from QE, gold has a limited supply.»
Digital Gold
Another asset class that has been gaining attention as a safe haven asset has been cryptocurrencies and bitcoin, most notably, also has limited supply at 21 million. But despite DBS’s recent launch of its own digital exchange which covers bitcoin, ethereum and more, Hou was more cautious on the new asset class.
«I do not have a view on crypto as to whether or not this is a good investment,» Hou said, though he noted that there were similar alternative characteristics as gold.
«We think that as long as it is not endorsed by central banks and government, we deem it as speculative at this point in time.»
