Wise Investing


August 19, 2016 | BY Chit Lijauco

Where to place one’s money is a decision that investors, especially the new ones, are finding difficult in the face of economic and political uncertainties. To the rescue are bankers Wick Veloso and Johnny Escaler.


Chances are, someone’s first exercise in building an investment portfolio must have been in a Monopoly game. Deciding which property the roll of the dice will most likely cause other players to stop at—a provincial resort or a building in the city, a means of transportation or a basic utility—and thus earn for the owner money is part luck, part strategy with the former enjoying a heftier percentage. In real life investment, however, luck does not have as much to do with the decision-making process; common sense and sound judgement could be better trusted to win the game. 

“To invest successfully over a lifetime does not require stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework,” said Warren E. Buffett, the American business magnate, in the preface to the Fourth Edition of The Intelligent Investor by Benjamin Graham.

With the volatility of a market pummelled by global threats and uncertainties, today’s investors are finding it more and more difficult to make their choices. The bright day today could turn into stormy weather tomorrow.

This prompted the Philippine Tatler to ask two esteemed international bankers—Johnny Escaler of Credit Suisse and Wick Veloso of HSBC—to shed some light on today’s complicated investment journey.

PHILIPPINE TATLER: Given the volatile situation locally, regionally, and globally, how should a wise investor play his cards?


WICK VELOSO: The key to smart investing is to know yourself as an investor—your objectives, risk appetite, and time horizon.

Your investment goals and needs are significantly determined by your life stage and aspirations. As these change, so should you review your investment portfolios. 

How much risk you are willing to take and how long you are willing to stay invested are major factors in identifying the kind of investments that could be suitable for you. 

For these investment tiers, investment classes range from a diversified investment portfolio consisting of equities, bonds, funds, foreign exchange, and structured products to physical assets such as real estate or equity in a business venture or enterprise. The choice of investment classes broadens as the investable amount gets higher. 

Regardless of the amount involved, the key is in knowing where and how much to allocate to different investment classes in line with the risk profile and horizon of the investor. 

Making wise investments entails making informed decisions—which a trusted financial adviser or relationship manager can help you with. 


JOHNNY ESCALER: Investment decisions cannot be made solely on the quantum of investible proceeds one has access to. Deciding on investments is not only driven by market opportunities but by one’s own financial profile [age, career path, family requirements, homeownership, tuition obligations, health, liquidity needs, etc]. A portfolio adviser will take all these factors into consideration when allocating between investments that provide income generation, capital preservation, and appreciation. 

2016 has been a volatile year so far and will continue to be a trading year. Events such as the interest rate hike in the US, a sustained China slowdown, financial crisis in Greece, oil price drop, among others represent further geopolitical risks; hence we are negative on equities. While we think a severe slowdown is unlikely, the data in the first quarter of the year has been soft so far and we have revised our GDP forecasts downward.

To navigate market volatility in 2016, we would position ourselves defensively and focus on investment themes that are supported by structural factors across asset classes. The Philippines, although relatively expensive vis-a-vis regional peers, still enjoys solid economic fundamentals. I would urge one to wait for market setbacks to build a position in Philippine blue-chip equities directly or via UITFs [unit investments trust fund].

Within Asia ex Japan equities, on a valuation basis, supportive monetary policy and positive reforms, we are positive on South Korea and Indonesia, and neutral on the rest.

In global equities, we would place our assets into regions where monetary policy and corporate reforms are supportive and valuations are favourable—that is, developed markets in Europe, Australia, and Switzerland. We are neutral on Japan and negative on US.

For equity themes which we are structurally positive on we would consider European recovery stocks and beneficiaries of the Asian tourism boom. In fixed income, we prefer global and Asian hard currency investment grade bonds. The European Central Bank [ECB]’s increase in the monthly asset purchase programme and the inclusion of corporate investment grade bonds therein should benefit the bid for global and Asian hard currency bonds, in our view.

In currency, we see the USD neutral against key major currencies [EUR, GBP, JPY, CHF, AUD]. For AUD and NZD, we believe the recent strength off the back of the commodity price rally may not be sustainable. For other majors, we like the cheap valuation of Scandies—that is SEK and NOK against EUR and CHF. For Emerging Markets [EM], we see value in selected EM currencies and remain broadly negative to most Asian currencies, in particular the CNY.

Diversification and asset allocation remain an integral part of our advice, and an investor would be prudent to diversify both on an asset class and a geographical level.

PT: What can a wise investor do to lessen the risks of his investment?

WV: A wise investor carefully analyses the possible reward versus the risks involved. According to our HSBC Global Insights team, there are three things an investor should be aware of to mitigate risk exposure: 

  • - Diversify, as no one asset class can outperform all the time
  • - Be disciplined and stay invested over the long term without trying to time the market; and,
  • - Focus on financial planning and review portfolios on a regular basis.

JE: Here are five pointers to consider:

  • - Don’t over-leverage;
  • - Adhere to a proper asset allocation subject to individual risk profiles [ex: 60 pe rcent financial instruments, 30 per cent equities, 10 percent cash];
  • - Diversify geographically and by asset class;
  • - With our global outlook being negative for equities and neutral for fixed income, hedge funds that offer exposure to alternative risk premia or to relative trading strategies that should outperform hedge funds relying on directional market exposure. Consider currency hedging if there is FX exposure;
  • Manage down duration exposure in a rising interest rate environment.
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PT: What advice would you give to young investors, ages 30-40?

WV: If they are not yet saving for retirement or their children’s education, now is the time to do so. Saving early allows them to maximise return and be more risk tolerant given the longer time horizon. New investors may start with bonds and mutual funds; more experienced investors may look into a more diversified portfolio. 

At this age, investors must not forget the value of insurance to protect their family from illness or unfavourable circumstances or where they have a mortgage, ensure the family is able to continue to make payments while enjoying quality of life. 

Some may find a variable linked insurance suitable where they need permanent life insurance at the same time are willing to allocate a portion of the premium to be invested in various instruments and investment fund within the insurance company’s portfolio. 

Everyone’s investment journey is unique and it is never too late to start investing. One will always have some level of savings to start it with, no matter the income level. It will entail a lot of discipline, sacrifice, and good decision-making, but it will all be worth it in the long-term. 

JE: Young investors have the benefit of time and should look to developing a portfolio via a buy-and-hold strategy and a strategic asset allocation, paired with opportunistic and tactical investments [eg Warren Buffet is a proponent of this]. Leverage can be beneficial in moderation, but don’t chase returns by over-leveraging.

PT: What advice would you give to senior citizens who want to invest?

WV: It is a common misconception that investing is for the young. However, at every stage of your life, there is a suitable solution for your unique circumstance. Senior citizens would be best served investing their funds into safer and more liquid securities assuming drawdown would be required. Estate planning is also something which the senior citizen could look into. It is always best to consult your relationship manager or financial adviser who can help you understand your needs, and be able to offer tailor-fit investment solutions.

JE: In terms of stages of life, senior citizens would be in the wealth preservation and maintenance stage. We would recommend looking at more liquid and stable investments, such as fixed income or unit trusts that provide steady coupons or dividends. They should also structure legacy planning for the next generation [trust, foundation planning etc]. 

PT: To what extent should an investor use borrowed funds for an investment? 

WV: One must always consider liquidity needs and investment objectives. Using borrowed funds for an investment is only for experienced investors who understand the risks, and are able and ready to take the volatility and possible losses, that come with any investment. 

JE: Under proper risk/reward considerations. It would make sense, for example, to take funding through a EUR loan at relatively lower interest rates to buy a EUR-denominated security with a decent dividend yield or coupon, so that the dividend yield or coupon exceeds the funding costs. USD, EUR, CHF, and JPY are decent funding currencies as the interest rates are relatively lower, compared to, perhaps, the AUD.

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