Investing: A defensive instrument against the weakening ringgit

This article first appeared in Wealth, The Edge Malaysia Weekly, on November 28, 2022 - December 04, 2022.

"We have been more passive in terms of product development as we are very careful. We ask, is the market conducive for these products? Do they meet investors’ real needs? We do not believe in coming out with tons of products. Whatever products we launch, we articulate their objective clearly.” - Tan

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Robo-advisory firm MYTHEO has launched the MYTHEO USD Cash Trust (MUST), which aims to shield investors from volatility in the currency market while helping them earn a decent return on the back of rising interest rates.

Since the start of the year, the ringgit has fallen by about 9% against the US dollar. As at Nov 21, the ringgit was trading at RM4.56 against the US dollar, compared with RM4.15 at the start of the year.

MUST aims to provide a safe haven for investors who want to keep some of their money in cash to avoid market uncertainties, which include a potential recession triggered by high inflation.

How does MUST work? Ronnie Tan, CEO of GAX MD Sdn Bhd, which is the operator of MYTHEO, says the product is a result of a collaboration between the robo-advisory firm and Interactive Brokers, a US-based multinational brokerage firm that operates one of the largest electronic trading platforms in the country.

Under the collaboration, investors’ money is placed under a trust administered by Malaysian Trustees Bhd (MTB) and managed by Interactive Brokers. The latter would put the money into the US money market, which is the trading of short-term investment instruments, such as fixed deposits, with low investment risk.

As of Nov 14, MUST provides investors with an annual return of 3.3% after the US Federal Reserve (Fed) raised its short-term borrowing rate in November to a target range of 3.75% to 4%. Its annual management fee is 0.5%.

Tan adds that MUST is available for investors via the switching feature in MYTHEO's portfolios. Investors can also top up their money in MUST, with at least RM500, accompanied by an initial deposit into MYTHEO's core portfolios or Global ESG portfolio.

He explains that Interactive Brokers was chosen as a partner because MYTHEO invests its clients’ money in exchange-traded funds (ETFs) through the firm. Additionally, Interactive Brokers has more than US$10 billion in equity capital, which would shield them from any market surprises and safeguard investors’ money.

“We are using Interactive Brokers because we already did our due diligence on them. And we invest in ETFs through them. When our investors want to switch around the MYTHEO core portfolio and MUST, it is seamless.”

From a portfolio perspective, Tan says investors should always invest part of their money in the equity and fixed income markets through the firm’s core portfolios, consisting of several ETFs. They are curated to each investor, based on their risk appetite and investment horizon and with the help of algorithm.

MYTHEO’s three core portfolios, which Tan describes as the omakase products, include the growth, income and inflation hedge portfolios. Omakase is a Japanese phrase used when ordering food; it translates into “I leave it up to you (the chef)”.

“These are the core products, which we promote heavily because those are our core strengths. They are meant to achieve sustainable returns over the long term while minimising risks,” he says.

However, MYTHEO does not impose any restriction or additional fees on investors who want to keep their funds in MUST over the longer term based on their market and currency views.

“Can MUST be a long-term investment? Today, the Fed rate is 3.75% to 4%. Whether it could go up further, nobody can read it precisely. If the rate hike continues [and the US dollar further strengthens against the ringgit], then yes, you can keep it.

“In a way, the product is also targeted at more savvy customers who want to time the market, even though we don’t encourage it.”

Is MYTHEO looking forward to launching more new products in the near future following the introduction of MUST? Tan says the firm has new products in the pipeline, but it is not in a hurry to push them out to investors.

He says the firm takes a more conservative approach in product launching as it wants its new products to meet the real needs of investors, instead of riding on the most recent market trends and investment themes.

For instance, the introduction of MUST is to help investors preserve some of their capital from the ringgit depreciation against the US dollar while shielding them from market volatility. Such a tactical need will arise from time to time.

“We have been more passive in terms of product development as we are very careful. We ask, is the market conducive for these products? Do they meet investors’ real needs? We do not believe in coming out with tons of products. Whatever products we launch, we articulate their objective clearly.”

Again, Tan describes MYTHEO as an omakase chef, where the clients leave it to the chef to prepare the best dishes for them. The firm wants to launch the right products in the right amount to its customers, instead of a long list for them to choose from.

“It means you leave it to me, and I will cook the right meal for you. If we launch a hundred over products and offer them to the investors, and tell them that they can order anything they want, they would feel lost.

“As a digital investment manager, I have a role to play, where I must tell people what food they can choose and what it means for them. I’m able to explain to investors if I have 10 products. But with a hundred over products, for example, it will be challenging. Even more so when I can’t explain it to you face to face. We don’t want to overwhelm our clients,” says Tan.

On top of its core portfolios and MUST, the firm launched the MYTHEO Global ESG (environmental, social and governance) portfolio in October last year for investors who genuinely believe in the trend and want to capitalise on it, says Tan.