Every year, at the beginning of March, June, September, and December, I share my personal pension portfolio and discuss investment strategies. I hope this will be helpful for those managing personal pensions.
While I prefer analyzing individual companies and valuing them, personal pensions only allow trading of ETFs, not individual stocks. Therefore, I need to take a macro approach, examining promising industries and choosing investment strategies accordingly. After revealing my current pension portfolio, I will contemplate my future investement strategy.
Pension Portfolio and Returns
Let's start by discussing the returns. My personal pension portfolio has achieved a 7.5% return since the beginning of the year. This is slightly lower compared to the Nasdaq100 and S&P500, both of which have shown returns exceeding 10%. However, the goal of managing a pension portfolio is to achieve stable and consistent growth over time.
Let's take a look at the cumulative returns since 2020. The green graph represents my pension returns. Even when all markets experienced a significant decline in 2022, my portfolio did not suffer as much as other indices. While my returns are lower than Nasdaq100, they are higher the S&P500, demonstrating a stable performance that alighns with my goals so far.
I held a large cash position in March. However, anticipating that semiconductors would lead the market due to the AI boom, I significantly increased my semiconductor holdings. My current portfolio is as follows:
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As of June 1, 2024
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The ETF tracking the US Philadelphia Semiconductor Index accounts for 22.82%, and the ETF tracking the KRX Semiconductor Index, which consists of major South Korean semiconductor companies weighted by market capitalization, accounts for 29.77%. In total, more than half of my portfolio is invested in semiconductors. Although the weightings were lower at the time of investment, the recent surge in semiconductor indices has led to an increase in their overall allocation. Additionally, I maintain a cash and Long term US Treasury bond position of nearly 30% to prepare for market shocks.
Will the Semiconductor Boom Continue?
If I were to categorize my pension assets, it would look like this: approximately in equities, 14% in Long-term US Treasury bonds, and 16% in cash. Of the equity assets, 52.59% are in semiconductor-related ETFs. Therefore, the key to my future investment strategy hinges on whether the semiconductor industry, which has performed well so far, will continue to thrive in the second half of the year.
Some investors are hoping for interest rate cuts to boost asset prices. However, I believe such an environment is unlikely to occure in the future. Since the COVID-19 pandemic, the US government has been recklessly increasing its fiscal deficit. When China joined the WTO and globalization continued, China's dollar earnings were reinvested in US Treasury bonds, suppressing interest rates. Additionally, the absence of trade barriers and China's production of cheap goods for export prevented inflation despite the persistent fiscal deficit.
However, the situation has changed. China now prefers gold over US Treasury bonds, and protectionist trade policies are keeping inflation high. This means the previous scenario of interest rate cuts and a "Bad is good" stock market, where a poor economy leads to monetary easing and subsequent stock market gains, is unlikely to repeat. Instead, if interest rates are lowered due to a weak economy, corporate EPS could decline, leading to a fall in stock prices. I believe we need to focus on "Good is good" now.
With the US goverment continuing to inject money into the economy, inflation may not be tamed, but the money will continue to flow somewhere. Corporate earnings need to be strong for stock prices to rise sustainably. Let's look at the recent earnings of Nvidia and Dell. Both companies have seen their stock prices surge due to the AI boom, and both have experienced significant revenue growth. However, Nvidia's AI-driven revenue came with high margins, while Dell's AI server margins were nere zero. As a result, Nvidia's stock price soared after its earnings announcement, while Dell's plummeted. This highlights the importance of investing in industries that can generate profits.
I predict that the semiconductor industry will continue to perform well this year. The AI revolution is just beginning, and many companies are investing heavily to gain an advantage in this race. US tech giants like Meta, Google, Amazon, Tesla and Apple are all making substantial investments(Capex), and as competition intensifies, their spending is increasing. This spending inevitably benefits the semiconductor industry. While the companies providing AI services will ultimately be the ones making money as AI technology matures, I believe that investment in semiconductors for AI computing will come first. The better-than-expected earnings and guidance from leading semiconductor companies like Nvidia and Qualcomm support this argument.
Investing in semiconductor ETFs certainly carries risks. A sharp economic downturn could lower corporate EPS and cause stock prices to plummet, even amidst the AI revolution. Alternatively, the current AI boom could suddenly cool down for some reason, negatively impacting semiconductor stocks. However, pension investments are not short-term endeavors. Even if stock prices fall due to these risks, if the cycle turns around in 2-3 years, semiconductor ETF prices will likely surpass their previous highs.
In conclusion, I don't plan to make significant changes to my current portfolio strategy. In fact, if there's a correction in semiconductor ETFs, I might even consider increasing my allocation. The bond ETF is there for asset allocation and to prepare for a potential economic downturn. However, with fiscal expansion expected to continue this year and no major warning signs like high-yield spreads, I don't anticipate a recession this year. Of course, I'm holding onto the bond ETF as a precaution against risks, as the inversion of long-term and short-term rates persists. Black swan events can occur unexpectely.
This concludes my update on pension investment strategy. Please note that all predictions are based on subjective judgements and may be inaccurate. Use this information for reference purpose only. All investment decisions are the sole responsibility of the investor.
Thank you.
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