Phillip ETF Model Portfolio – February 2018 March 9, 2018



Markets Commentary

February marked the worst performing month for the ETF portfolios since inception. All asset class returned negatively in February when a correction of more than 10% for the S&P 500 threw investors off-guard. The correction led to an implosion of volatility, with the VIX index spiking to an intra-day high of 50.3 on 6th February. The move wiped out a large part of the short volatility trade.

The market remains jittery as U.S 10-year Treasuries yield look to break above the key 3 percent level. The crucial level is along a 37-year technical downtrend line, when bond investors have been experiencing a bull market. February saw the 10-year UST yield reaching a 4 year high of 2.94% before receding back down. If the yield does break above the 3 percent level, we expect a surge in volatility to ensue.

The 2s:10s spread (as highlighted in our Key Chart below) depict a flattening yield curve as 2-year UST yield continues to increase at a faster rate than the 10-year UST yield. The yield curve will most probably be inverted when the spread hit zero. Historically, a US recession is imminent when the yield curve is inverted.


Other market risk indicators have also revealed that investors are becoming more risk-averse and price sensitive. Credit spread across all credit grades have plateau from a downward trajectory and seems to be reversing. TED spread, a measurement of interbank liquidity risk, has also increased as lenders priced up counterparty risk.

Trump’s resolve to slap tariffs on steel and aluminium might spark a trade war with China and we are wary of that risk. As mentioned last month, we see a paradigm shift in volatility, normalising away from a low volatility environment.   

Despite the surge in risk premiums, economic data and sentiment surveys in February remain positive. At this point, we will take market price action as the foremost leading indicator as they are a direct reflection of investors’ confidence in the market. 

Our strategic asset allocation remains unchanged but we are ready to “de-risk” the portfolio if current weakness in the financial markets is substantiated with a deterioration in economic data.








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Profile photo of Pei Sai Teng

Pei Sai Teng
Investment Analyst
Phillip Securities Research Pte Ltd

Sai Teng covers the global macro research. He has more than 6 years investment experience primarily in portfolio construction and asset allocation.He graduated with Bachelor of Science in Banking and Finance from University of London.

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