Many investors have already amassed some capital which generally tends to languish in a bank deposit account attracting relatively low interest rates. This has probably been amassed over a period of time and therefore it is important that this grows to offset the effects of inflation.

An important aspect of money is the long term effects of inflation. Currently in the Hong Kong economy inflation is around 1.5%. If an investment is growing at only 1% then the real value of that investment is being eroded each year! The effect will be that the investment will not have the same buying power a few years down the line. When considering other investments then inflation must be factored in. Therefore an investor should look to earn 2.5% at the very least to reduce the effect of inflation.

Before making any recommendations we would ask questions to ascertain what the investment is for, how long would it likely to be invested and more importantly, what risks the investor is happy to take and what return they would like to achieve. The latter obviously has to be fairly sensible as a key aspect to our recommendation would be the security of the investment and capital preservation.

Once we have a clear picture of the financial goals and aspirations we would then research the market for suitable funds and products that would realise those goals.

As with any type of investment time is an important factor. If the capital is required within a short time frame then a lot of investments would prove unsuitable as there may be insufficient time for the investment to grow. In these circumstances then time deposits are a better option. Where an investor can think in the medium to long term then there are many opportunities available.

We have listed below different types of investments and funds that are available with a brief explanation. Further details can be found under the relevant headings elsewhere on the site.

Investment Accounts
These are single premium accounts generally offered by authorised insurance companies. The benefits for an investor are a simple structure, low costs and investment flexibility through the ability to switch from a broad menu of funds generally at no cost.

An added advantage is that the insurance companies would be based in tax havens such as the Isle of Man and Channel Islands which offer unequalled levels of investor protection. (Tax Havens) These companies are long established, well respected and financially secure.

Personal Portfolio Bonds
These would be attractive to more discerning investors who may already hold a number of different assets or investments and wants to make the administration more simple and straightforward. These assets would be equities, funds, foreign currency holdings etc. They would also give access to mutual funds anywhere in the world. As insurance companies are institutional investors themselves they can negotiate huge discounts on investments which would be passed on to the investor.

These accounts can also be used as Asset protection vehicles with the bond written in the name of a trust. (Trust)

Mutual / Investment Funds
These probably form the most popular investment in the marketplace.

Basically these are collective investment schemes where a professional fund manager would take your investment along with all his other investors and buy shares in companies. There are many, many types of funds to suite every taste and cover every asset class. From high risk warrants to low risk income funds.

Funds are given names to identify their scope:

Global - Can invest in any country and any asset class
Country Specific - Would invest in a specific country i.e. Hong Kong
Sector- Invests in a particular type of business i.e. Finance
Index Tracker - Follows a particular index i.e. Hang Seng
Theme - Specialise in a particular area i.e. Biotechnology, Leisure

The complete list is exhaustive but at least the investor can now be specific as to what type of fund they wish to invest in. The problem with this type of choice is how do you select a fund from 8,000 available?

Invariably these types of funds tend to be know as ‘long only’ funds, that is to say that a fund manager would buy a stock and hold it within the fund until he felt it the right time to realise the gain and sell it. The main criticism with these funds is that they can only make money when markets are moving up and the values of the stocks rise. These types of funds are also very restricted by law and must be invested in the market at all times. So the manager’s hands are tied as he cannot sit on cash if the markets are unattractive or falling. The last three years have been particularly difficult for managers and investors alike as the markets have lost ground.

Hedge Funds
These funds were once the domain of institutional investors, banks, pension funds, insurance companies etc. There basic make-up is simple as they combine a number of professional managers specialising in different asset classes. The idea is to balance the risk and have a wide range of diversification within the fund. Usually these types of funds would have between 10 -25 managers, all specialists in their own right. The idea is that these funds will perform well in all market conditions and try and maximise returns whilst minimising the risks. They seek to give more solid and reliable returns.

These funds have become more popular with investors who are looking for opportunities that will give positive returns irrespective of market conditions. In some respects there is no market exposure at all as these managers tend to specialise in alternative investment strategies.

Another concept unfamiliar to normal investors is ‘short selling’. A hedge fund is not constrained by regulations so can be more structured to market conditions. They also have the ability to ‘short sell’. This means that they can approach an institution and ‘borrow’ shares for a fee. These are then sold with the expectation that the market will fall. They will then buy them back at a reduced price and make their profit and hand the shares back. In the last three years the markets have benefited short sellers and some governments have accused hedge funds of worsening the decline by systematically driving the market down. Volatility in the markets is a happy hunting ground for short selling.

Alternative Investment Strategies
These are definitely the reserve of the experienced investor. The returns can be huge but then so can the losses. The types of strategies tend to be options and warrants, futures or commodity contracts, currency swaps and arbitrage.

We wouldn’t seek to go into too much detail here as they are very complex investments.

Discretionary Portfolio Service
For High Net Worth Individuals (HNWI) we offer a personalised discretionary portfolio service through our relationship with Morgan Stanley Quilters. They will agree an investment strategy based on a client’s attitude to risk and return and will manage the portfolio on a daily basis. This service aids the client who can rest assured that he has a professional fund manager looking after his investment. We at TTG will also follow the progress of the portfolio and give regular reviews to the client.

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