Business

Investing outside Jamaica? Strategies to consider

BY DENNISE WILLIAMS
Contributor

Friday, January 26, 2018

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In terms of the plethora of global assets available to investors, Deltec Investment Group, partner of local investing consultant Leo Williams says that one should consider a preference for equities and cash & money market securities over bonds and real assets to capitalise on the continued global economic expansion and secular decline in liquidity growth.

That said, Deltec offers specific strategies for four broad asset classes.

CASH AND MONEY SECURITIES

Repurchase agreement might be dead and buried for most investors, but that does not stop people from seeking a guaranteed monthly or quarterly interest payment. Hence, money market instruments are still a viable investing option. The research team at Deltec recommends that investors look to companies which issue money market instruments rather than governments, as the yields on those assets are lower. This is evidenced by the recent announcement by our own Bank of Jamaica dropping the overnight rate to three per cent. Governments around the world are following the same trend, and so Deltec writes, “Preference for selected investment-grade financials and corporates over low-yielding sovereigns and cash. Corporate balance sheets and cash flows are robust, and money market rates have also increased with policy rates.”

BONDS

Bonds, which are really a type of loan, are another way that investors can earn interest income. These are more risky than money market instruments due to the fact that the debt may not be repaid. However, investors are charged to research and only invest with companies that have certain ratings by companies such as Standard & Poors.

That said, Deltec is of the view that “investors should have a preference for investment-grade corporates and high yield over sovereigns (which are issued by governments). Corporate balance sheets are strong and economic growth continues to improve, and whilst spreads have narrowed, further compression is likely for selected sectors and issues. Floating rate and long-duration exposures are preferred, given interest rates are likely to rise further, although to a lower neutral rate, leaving the belly of the curve most negatively impacted.”

Deltec is suggesting that investors stick to corporate bonds rather than government bonds. And further, investors should look for bonds that have interest rates that “float” or move up and down to ensure that their return is in line with market trends. And finally, Deltec recommends that investors look for bonds with a long duration.

However, in Jamaica, most investment managers will tell you to stick to bonds with a duration of less than 5 years so that you can earn interest and get back your money in as short as period and possible.

EQUITIES

Both the US and Jamaican markets are doing well, but have you ever considered investing in Japanese or European stocks? Well, the research team at Deltec believes that you should. They state, “Preference for selected developed markets and selected emerging markets. Within developed markets, Japan, Europe and the US are preferred over other regions, with undervalued growth-sensitive sectors preferred to liquidity-sensitive sectors. In emerging markets, selected opportunities exist in countries where structural issues are being addressed, and in selected sectors.”

 

COMMODITIES, GOLD, REAL ESTATE AND ALTERNATIVE INVESTMENTS

The research team believes that private equity is the way to go as an alternative investment rather than real estate, oil or gold.

“Valuations on real assets are expensive, especially given the secular decline in liquidity growth. Within alternatives, event driven and macro are preferred at the current point of the cycle. Private equity is well positioned for the continued yield premium and potential capital upside over public markets. Commodities, gold and real estate are ineffective inflation hedges and more attractive relative returns are available elsewhere.”

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