Tim and Ritesh chat through what it takes to build a successful investment portfolio in 2023, the launch of Syfe Smart Baskets, the current state of financial markets, and some of the risks and opportunities investors should watch out for in the year ahead. Watch the video interview or read the transcript in full below:
Tim: Welcome to our guide on Building a Successful Investment Portfolio in 2023. Today we’re joined by Syfe’s Head of Investments and Advisory Ritesh Ganeriwal. Thanks for joining us.
Ritesh: Hi, it is a pleasure to join you as well. Investing has always been such an important topic, but I guess it is even more relevant in this whole post pandemic world where our lives have been turned upside down.
We have seen the unfolding of once in a lifetime macroeconomic events, unprecedented policy actions as well as geopolitical headwinds leading to tectonic shifts in the markets and a future that looks increasingly uncertain.
This, as you know, combined with the fact that Asian [and APAC investors], while we are good at savings, we certainly lag behind when it comes to investing.
This makes it even more critical to pay attention to our day to day finances and invest for our long term goals.
Tim: That is an awesome introduction. Thank you, Ritesh.
So before we kick off today’s session, just for the audience, please do note that this session [including the video and transcript] is meant to present only factual information about the state of financial markets and investments in general and is not intended to offer any recommendations or opinions about financial products.
So, with that out of the way, Ritesh, before we dive in, did you want to give the audience a little bit of info on your background and the work you currently do at Syfe?
Ritesh: Sure. Thanks Tim.
So I’m Ritesh. As Tim mentioned earlier, I’m the group head of Investment & Advisory at Syfe, I’ve been in the financial markets for over 15 years now and have previously worked with major investment banks such as Morgan Stanley and Goldman Sachs.
My experience spans multiple asset classes and I have advised clients across the wealth spectrum – including institutional, private banking, and retail.
At Syfe I’m responsible for building out our global investment product suite and constantly enhancing it to cater to the evolving needs of the modern investor.
The investment team that I lead is composed of quant experts, PhDs who specialise in building institutional level portfolio solutions for our clients.
Our aim is really to offer investment strategies for the most important customer goals in life including […] buying your first home, education for your Children or even for your own retirement planning.
Tim: Thanks, Ritesh. I can definitely say firsthand that the Syfe investment and advisory team is first class.
So big picture, Ritesh. Can you give us an overview of where you think financial markets are today? And if you could hone in on a few key areas like equity markets, interest rates and inflation. Essentially, what’s your view here?
Ritesh: Sure. Definitely the last few years have been a rollercoaster ride for investors, right? 2022 was particularly challenging with global equity markets plummeting almost more than 20% as the US Fed and other major central banks around the world…They grew more hawkish and amidst decades high inflation embarked upon one of the fastest rate hiking cycles in recent history!
We also saw increased volatility globally as energy prices skyrocketed amidst the Russia-Ukrainian war and Chinese markets continued to face headwinds with regulatory overhang as well as uncertainties around its zero covid policy.
What made it even more worse was the fact that bonds fell in tandem with equity markets and bonds are supposed to be these safe haven assets which provide downside protection. But they didn’t, resulting in a very difficult time for investors to diversify their holdings.
Looking ahead, I guess the forward inflation expectations and the interest rate policy paths are certainly going to be the key drivers of financial markets today.
We are seeing early signs of stress. We’ve seen the collapse of banks such as SVB [Silicon Valley Bank] and the takeover of major institutions such as Credit Suisse by UBS.
So while the US Fed remains committed in its fight against inflation, I do believe that the recent events will lead to some moderation in the fed hiking cycle in the near term, which can help us kind of avoid a deep recession or a hard landing, hopefully resulting in a more optimistic outlook for financial markets in the second half of 2023.
Tim: Great summary, Ritesh!
Zooming out and looking forward, what are some of the key things that investors should be watching out for in 2023, given that environment?
Ritesh: I think ultimately investing responsibly in a consistent and diversified manner are going to be key in the long term success for generating wealth.
So while major interest rate hikes from the US Fed and other central banks, you know, banks around the world have certainly elevated the risk of recession in your future.
It kind of also presents us a lot more opportunities, right?
With equity markets, for example, valuations are looking increasingly attractive, with high quality growth companies making a comeback after facing valuation headwinds in 2022.
Similarly, if you look at the fixed income and the bond markets, they’re also poised for much higher expected returns as we see a sharp increase in yields and credit spreads as well.
So overall, I believe, while the markets are still very uncertain, the combination of rising bond yields and falling equity valuations means that the expected returns of a multi-asset portfolio has considerably moved higher.
And while near term risks remain elevated – markets, I believe – will continue to reward investors who are patient and are ready to invest consistently for the long term.
Tim: Great answer. Thank you for that.
So, as you know, and as your team have been deeply involved in, we’ve recently launched our Smart Basket product in Australia, which gives investors a powerful ability to buy into a pre-selected group of ETFs or stocks based on their risk tolerance and investment time horizon.
In your opinion, how could a product like this fit into building that successful diversified portfolio?
Ritesh: So for me, one of the key learnings that I share with clients all the time who are looking to invest for the long term and invest successfully is basically knowing that diversification is the only free lunch left, right.
So for an investor who’s looking to build long term wealth, it is super important to have a globally diversified portfolio that spans across asset classes, geographies and sectors. With the Syfe Smart Baskets, essentially investors are able to invest into a curated list of ETFs and stocks, that best capture factors that are driving global growth and are also personalised to cater to the different risk tolerances as well as investment time horizons of individual investors.
By using some of these Smart Baskets, investors are able to optimise their allocations across global markets and easily automate their investments in a cost effective manner as well.
One very cool feature that I find as part of [a part of Smart Baskets] is the fact that the cost of investing into these Smart Baskets is typically a fraction of what you will pay when investing into individual stocks and individual trades…And this can really translate into meaningful savings investors and can help investors boost their net returns in the long term as well.
Tim: That is a great summary. We’re really excited about the power that Smart Baskets brings our customers. So thank you for that Ritesh.
With all that in mind, what do you think, you know, a successful investment portfolio looks like to you in 2023, and how would it differ, from say one that you would have built in, say 2021?
Ritesh: Sure! Look, I think not much is different in my opinion when it comes to someone who is a long term investor.
But at the same time, a successful kind of investment portfolio for 2023 will definitely need to combine factors, things that I talked to you about earlier, things like diversification, cost effectiveness and a long term investment orientation.
I think these are the three factors that are paramount when designing your portfolio for the future.
Why do I say this? Because research has actually shown that an effective asset allocation is the driver for more than 90% of the long term returns in your portfolio.
With, you know, things like security [stock] selection, market timing only accounting for a small fraction of your long term returns.
So my view is that rather than chasing short term returns, as was the case in the post-pandemic world of 2021 where investors poured into very high growth, speculative assets…in 2023 investors really need to focus on long term wealth generation through well rounded portfolios that are aligned to their risk appetite as well as to their investment time horizon.
Tim: So, based on the data that you’re you’re seeing and framed against, the perhaps heightened volatility that we’ve seen over the last 12 months…what changes, if any, have you observed in investor behaviour at Syfe and more broadly, especially when it comes to considerations like investment time horizon and investor risk profiles?
Ritesh: See, I think the last 12 months particularly have been very painful for investors as we saw. Now, with the ongoing uncertainty in the markets where inflation remains sticky and continued, kind of, Fed rate hikes have elevated the fears of recession…investor confidence to invest into risky assets has definitely been hit, right?
We have seen a substantial shift in investment behaviour with allocations moving to more safer asset classes such as money market funds and fixed deposits, as these instruments are able to generate decent mid-single digit returns with a relatively low risk profile.
Of course, I do believe that this phase is temporary though.
And while such safe haven investments could ride you through this period of uncertainty, investing into an optimal mix of risky assets such as equities and fixed income is still critical to beat inflation and achieve your long term financial goals.
Tim: Okay. That’s really interesting.
So getting a bit more granular then, how often do you think investors should be reviewing their portfolio, as an example? And how important is this process for those long term success metrics?
Ritesh: That’s a great question Tim.
Generally speaking, we recommend investors to consider designing their core investment portfolios first and usually their core, I mean the core investment strategies or the portfolios that we are thinking about typically should have a time horizon that is 3-5 years minimum, right?
So when you put that into context, these are strategic long term asset allocations for our clients.
Usually a 3 to 6 month kind of a review process is sufficient to address any major changes in the expected returns of the underlying asset classes and also to optimise the allocations accordingly.
By comparison, I don’t think it makes sense for you to look at the markets on a day to day basis and try to, you know, juggle around [trades]. That will typically lead to emotional biases and things that will make you take decisions which are not – I think – optimal.
So in that context, I believe that when it comes to long term investing and strategic asset allocation, a 3-6 month time frame is a good enough time frame from a review process standpoint.
Tim: Thanks. So, final question for you Ritesh. I think it’s fair to say that the last couple of years have been defined by the market perhaps underestimating the likelihood of certain key outcomes. We’re talking geopolitical volatility or interest rate expectations and how quickly they’ve changed.
So bringing it back to the present. Is there anything you’re seeing right now – risks, opportunities – that you think the market might currently be currently under appreciating?
Ritesh: Right. So I think as I alluded earlier, while global economic uncertainties have certainly dented investor confidence, the falling markets have also kind of brought in a silver lining and opened up opportunities.
We are seeing government bond yields and credit spreads that have increased sharply…So you’re able to generate mid single digit returns by investing into investment grade and high quality bonds.
Equities, as you know, valuation multiples are now at historical levels or below average levels seen over a long period of time.
So this really positions an investor to have a return profile, which is much, much better with a much more moderate asset allocation overall.
So the global say 60-40 portfolio, which is considered to be your moderate risk portfolio has a current nominal expected return north of 7%.
And this is you know, projecting over the next, say, five years or more the same portfolio.
Compare that to if you go back a couple of years, say mid-2021 – that same portfolio was expected to generate only around 3% returns.
So the allocations into a moderately risky portfolio is now basically positioned such that you can generate a healthy high single digit return.
It also means that investors looking to generate a certain nominal expected return…They don’t really need to take excessive risks in this market, right.
You can have a moderately allocated allocation to risky assets compared to what you would do historically and still, your expected returns are much more favourable.
So yes, I think the uncertainties will remain. There are things that will become more apparent as we move forward towards the second half of this year [2023].
I do believe the US Fed will moderate in its interest rate hiking cycle, while at the same time, I don’t think the rate cuts are going happen, you know, fairly soon, at least not in 2023.
But that does give the markets a much more optimistic outlook as we move towards the second half of 2023.
Tim: That is very well answered, Ritesh. And As always, a pleasure speaking to you.Thank you for taking the time today. A really fantastic interview and great answers to all of my questions.
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