In the high-growth technology sector, investor sentiment often drives volatile market movements. While we embrace some level of volatility in this growth-oriented sector, we believe it is important to express our technology satellite position in a more balanced manner, considering both risk and return. 

This approach enables us to capitalise on unique alpha opportunities and outperform the broader market. Our goal is to achieve improved risk-adjusted returns while minimising downside risk.

As such, we are excited to share the updated Endowus Global Technology model portfolio, designed to provide investors with diversified exposure to the global technology market. It seeks to capture the growth of large, established technology leaders while also participating in the upside of incumbent industry players. 

Funds in the Technology Satellite Portfolio

The rationale behind key changes

The growing presence of AI exposure in broader tech-themed funds

While we continue to value the strengths of the Allianz Global Artificial Intelligence Fund, our Portfolio is shifting focus towards a more broad, diversified portfolio to maintain flexibility and adaptability in a dynamic market environment. Additionally, the growing development of AI has prompted us to believe that AI-related opportunities can be well-represented within wider technology-focused funds. Thus, Allianz Global Artificial Intelligence Fund is removed from the Portfolio. 

Enhancing the risk-adjusted return by reducing the concentration in small-cap stocks

We continue to hold a strong conviction in the BlackRock BGF Next Generation Technology Fund, recognising its value as a diversifier through its unique portfolio of global investments in small, emerging companies, and its potential to generate alpha within a diversified portfolio, particularly during risk-off environments. 

However, we are reducing its allocation to 5% (from 19%) to decrease concentration in the global smaller-cap space, which tends to be more volatile compared to large-cap and more established companies. This adjustment aims to enhance the overall risk-adjusted return of the Technology Portfolio.

Building a “Core-like” Technology allocation

Janus Henderson Horizon Global Technology Leaders Fund - The Fund invests in a globally diversified portfolio of technology-related companies.

Investment Approach: The Fund focuses on investments in larger-cap, more established companies that emphasise profitability and exhibit low volatility. This approach is supported by the team’s strict valuation discipline. Consistent with its strategy, the Fund has historically demonstrated favourable risk control and delivered superior risk-adjusted returns. 

Rationale: As we re-design the portfolio to enhance risk-adjusted returns, we are increasing our allocation to more “Core-like” funds within the technology sector, which means they serve as anchor positions in portfolios, aiming to provide attractive long-term returns with lower volatility. They will also complement other higher-growth funds such as the BlackRock BGF Next Generation Tech Fund and JP Morgan US Technology Fund.

JP Morgan US Technology Fund -  The Fund invests primarily in technology-related US companies.

Investment Approach: The Fund invests flexibly across various market capitalizations and sectors within the US technology market. While it does not have an explicit mandate to invest only in small caps, it has historically featured good exposures to small- and mid-caps, emergent companies that are typically not found in other broad tech funds. By focusing exclusively on US companies, the Fund also aims to mitigate the inherent risks associated with SMID cap investing compared to non-US small- and mid-cap technology investments.

Rationale: We recognise the potential value of smaller technology companies in a diversified technology portfolio, particularly for their ability to deliver attractive returns during periods of risk-off market sentiments. With its US-focused small- and mid-cap investing philosophy, this Fund will help maintain small- and mid-cap exposure within the portfolio while reducing the volatility associated with non-US SMID tech companies.

Comparing the old and new model portfolios: Allocation breakdown

Geographically, the new Technology model portfolio will remain similar to its previous version, with a primary allocation to the US. However, the new portfolio features a greater allocation to the US to ensure robust participation in the dominant US tech sector. 

The remaining portion of the portfolio will be broadly diversified across markets in Europe and Asia. This approach enables the portfolio to take advantage of the dominant growth in the US technology sector, while also participating in the potential offered by markets outside the US.

In particular, non-US exposure is relatively less in global technology market indices, making the Global Technology model portfolio an attractive way to invest in the technology market in terms of geographical diversification.

The new portfolio also features an increase in mega and large-cap allocations, while preserving a similar overall size distribution by maintaining a diverse mix of mid and small/micro-cap stocks, including private companies. 

In comparison to global technology market indices, which are predominantly mega and large-cap focused, this portfolio allows investors to benefit from a more diverse range of technology companies, spanning both industry leaders and innovative newcomers.

Expected results of the optimisation

While hindsight often leads to better-optimised returns compared to the previous iteration, the new model portfolio is intended to deliver improved risk-adjusted returns in the long term, which notably include greater allocations to higher-quality companies and reduced weights on more volatile technology investments.

Moreover, the quality of a fund's process and management team holds significant importance, extending beyond mere performance. We also maintain a steadfast belief in these funds’ capacity to outperform over the longer term, driven by active allocations across technology themes and equities.

From the tables, we can observe several improvements:

• Better risk-adjusted returns, especially over the longer term
• Better risk management in terms of maximum drawdown, rolling 12-month worst returns, and volatility

How to create your own Global Technology model portfolio on Endowus Hong Kong

Here are a few simple steps to create the Endowus Global Technology model portfolio via Fund Smart.

Step 1: Login to your Endowus account. In the My Goals section on the sidebar, click on “+” to add a goal.

Step 2: Select a model portfolio you’re interested in, by clicking the . You will see a list of model portfolios.

Step 3: Check through the portfolio details. Click on “Continue with portfolio” if you wish to proceed.

Here, you will see details of the model portfolio such as the description, risk analysis, fees, performance, and allocations of its underlying funds. After you click on “Continue with portfolio”, you can still add funds, remove funds, and modify allocations if you want to.

Step 4: Set up your investment horizon and investment objects.

We hope investors can make investment decisions with a goal-based mindset to ensure that the investments align with their risk tolerance and to avoid frequent trading due to external factors that could ultimately affect long-term returns.

Step 5: Allocate your funds in this portfolio, and review an analysis of it. Click on “Continue” to proceed.

You can either invest in the model portfolio as it is, or modify the allocations, add funds, and remove funds to suit your preferences and needs. 

Step 6: Set up your investment.

Input the amount you want to invest, and decide whether this will be a one-time or recurring monthly investment. Click on either “Continue to review” or “Save goal and invest later” to proceed. After checking the final checklist, you can confirm the investment.

On these two pages, you will see the projected outcomes, historical performance, selection criteria, underlying holdings, fund fees, and warning statements. Make sure to review the warning statements carefully. You can still modify or stop any recurring monthly investments later. 

Remember that return is proportionate to risk. You should consider your risk tolerance — for example, how much money can you tolerate losing in a certain time period, in a worst-case scenario? The portfolio should then suit your risk appetite, as well as your investment timeline and financial goals.

Frequently asked questions

1. Why does Endowus recommend portfolio changes?

Our Investment Office is constantly evaluating the funds in our advised portfolios and the wider investment universe. If we feel that other funds can better express our asset allocation views at a lower cost or improve the risk-return profile of the portfolio, we will recommend a portfolio update  to our clients.

2. What is the Endowus Core-Satellite approach?

Most investors should begin with an allocation to the Endowus Core strategies. All core portfolios must be globally diversified, have a strategic passive asset allocation (SPAA), and be low-cost. It is advisable that all investors begin with a meaningful asset allocation to core portfolios for their essential financial goals before extending their investment holdings to Satellite positions.

Read more: Core and satellite investing with Endowus

3. Why is the recommended portfolio change suitable for me?

As the market changes, a portfolio's allocation may not always be optimal. Therefore, making necessary adjustments to adapt to the latest market dynamics can enhance the efficiency of your investments, ensuring that you steadily progress towards your investment goals. Once again, we remind you to fully consider your investment objectives, personal financial situation, and risk tolerance before making any investment decisions.

Have more questions? Schedule a 1-on-1 appointment with our SFC-licensed financial advisors at any time!

Read more:

• Introducing Endowus Portfolios — curated with Best-In-Class Funds for core-satellite strategies
• Introducing Endowus Flagship Portfolios: a core strategy for your financial goals
• Choosing Endowus when investing in Hong Kong 
  

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