Geographical Diversification, Part 2: Answering Ayon's Questions

DEAR INVESTOR JUAN

In this post we go straight to answering Ayon's questions from Part 1.

1. Is the 50% US stock allocation due only to the location of the magazine? If so would it make sense to just switch Phil. Stocks with U.S. (i.e. 50% Phil, 15% US, 15% Foreign Developed)? Or is it truly better to follow the recommendation and put 50% in the US?

From the previous post, we have established that geographical diversification--that is, investing in different markets around the world--can be used to hedge against country- or region-specific risk. If you have already decided to diversify into foreign markets, the next steps are to identify which markets you want to invest in and how much you are going to invest in each market. Ideally, asset allocation/portfolio construction should be based on an analysis similar to the one described in this post, and I'm not sure if the percentages that you mentioned are a result of this procedure or rules of thumb. What I'm (fairly) certain of is that you allocate the biggest portion of your investment in the currency that you earn and consume/spend. Why? Because earning in one currency (say, peso), then investing in another currency (say, USD), and then converting back to the original currency to spend the money entails a significant exchange rate-related cost. Banks (and money exchange companies) earn from currency conversion by buying at a lower rate and selling at a higher rate, as this table from BPI shows:

If you convert from peso to US dollar and back, for example, you effectively "pay" (40.97/40.18 - 1) = around 2% (assuming the exchange rate remains stable), which means your US-based (or US dollar) investment should earn 2% more than a comparable peso investment for the move to make sense. Actually, it's not so bad for the US dollar since it's widely used in the Philippines, so the spread (difference between the buying and selling rates) is not that high. If you take a look at other currencies such as the British pound (7.45%) and the Hong Kong dollar (16.73% !!!), this exchange rate related cost can be very significant. And this is on top of other extra fees that you will incur if you invest in securities from other countries, which I'll discuss in question 3.

Just to clarify, I'm not saying investing in foreign markets/currencies is wrong; I'm just saying that if you earn and spend in one currency, it would be best to invest most of your holdings in that currency to lower your exposure to exchange rate related costs.

2. If ETFs are locally unavailable, and I want to begin passive investing, what's the best alternative I can get?

We don't have ETFs yet. Laws for ETFs, REITs, and even "PERA" provident funds have already been passed, but I think persons-in-charge are still dickering over the details of implementing rules and regulations.

We do have stock index funds, which are "passive" by definition. I discussed a couple that I know of here.

3. What would be the best way to invest in foreign ETFs? A friend mentioned he opened an account with etrade in Singapore, but I'm not sure if that's the best way.

I'm not really sure if one can open an eTrade account from the Philippines; I'm sure I explored it before, and I remember not being able to find a convenient way of doing it. In any case, even if you are able to use eTrade, I'm not sure that it's the best way to invest in foreign ETFs because it charges a commission of 5% for every transaction, as far as I recall. Costs and fees like this, on top of the currency-related cost that I mentioned above, make investing in foreign markets very expensive.

A more efficient and less costly way to diversify geographically is to invest in a locally offered fund that invests in foreign securities. One example is BPI's Odyssey Asia Pacific High Dividend Equity Fund, which if you take a look at its latest report, is heavily invested in countries like Australia, China, Hong Kong, and Singapore. While this method of diversifying geographically also entails additional costs (US dollar denomination, 1.75% per year management fee), it's still better than if you do it on your own--if you can do it on your own.

4. I believe I've got the Fixed Income investments covered in my Balanced fund, but I'm curious to what those Alternatives really connote. 

"Alternative investments" generally pertains to non-stock, non-debt investments such as real estate, commodities, and private equity.

I hope I was able to address at least some of your concerns. Good luck!

Wealth Management for Filipinos Abroad

Wealth management through a Philippine bank offers a good way for Filipinos based abroad to have access to and manage investments in the Philippines. Wealth management services allow investors to:

1) Open investment accounts remotely;
2) Move funds to and from investment vehicles; and
3) Receive information about upcoming financial products

The service was introduced to me by a former student who works at RCBC. Through the service, I was able to invest in RCBC's peso equity and bond funds without having to go to a local RCBC branch. While the steps that I describe in this post pertain to RCBC's wealth management service, I'm pretty sure that other banks would be able and willing to accommodate a similar procedure.

Opening an account

Our conservative banking laws require signatures on numerous forms for opening a deposit or investment account and make it difficult for overseas Filipinos to avail of local bank services remotely. The most straightforward workaround for this requirement is to have the documents sent by mail to your overseas address, and for you to send the documents back to the bank once they are filled up and signed. In my case, the documents were sent to the bank's branch in Hong Kong so that I did not have to pay for postage in sending them back. Once the documents were received by the Philippine office, a savings account to which I could to remit my funds was opened on my behalf.

Remitting and allocating funds

You can send funds to the savings account that is associated with your wealth management account by any means. I used RCBC Hong Kong's remittance service to transfer my funds to the Philippines.

Investors may choose from available Philippine UITFs and mutual funds, time deposits, and upcoming and outstanding bonds to invest in. Once you have figured out how you want to allocate your funds to different investments, you can simply email your instructions (i.e., which investments and how much per investment) to the bank's account officer or representative.

Monitoring and managing investments

You can also email subsequent buying and selling instructions to your bank contact. My account officer frequently furnishes me with reports regarding upcoming investment products and even regulatory information that may affect my current and future investments (he was the one who informed me of the BIR's clarifications for five-year investment tax exemptions).

You can monitor the performance of your investments through the usual channels (e.g., Bloomberg, the bank's website/e-banking platform).

The costs of availing wealth management services

There is no separate, explicit fee for the service, which means that you just pay fees for that your chosen investments charge; the bank will not charge you for investing on your behalf. You'll have to maintain a certain cash balance in your savings account (10,000 pesos in my case), however, so that involves some opportunity cost.

You also incur some costs whenever you send money to your Philippine account (e.g., remittance fee, exchange rate spread), but these aren't really a direct result of availing the service.

It's not a cost, per se, but wealth management services usually require an initial investment of 1 million pesos, which some of us may find prohibitive. If you're really interested in the service but don't have that much capital available for investment, try requesting for a lower initial investment amount.

To end, if you're a Filipino who's based abroad and you're looking for a way to invest in the Philippines, as far as I know opening a wealth management account is the only way to do it remotely--and efficiently and cost effectively, at the same time. I've done it, hassle is minimal, and it works.

If you have questions that were not covered in this post, please feel free to ask in the comments section below.

Short Answers to Unanswered Questions: Emergency Fund for Emergencies and Investing From Abroad

DEAR INVESTOR JUAN

Dear Investor Juan,

I'm Alexander, 23 y.o. I'm currently trying to create a sound financial plan for my accumulated savings. So far, i have roughly 150,000 in savings and i'll be setting aside 72,000 as an emergency/buffer fund (i pegged it at 6 months at Php 12,000 per month). The rest (at around 78k) i'm planning to put aside in high-yield investment instruments or maybe add it to the 7,000 i have in an equity fund which i opened last May. :)

Any advise where it's best to keep an emergency fund without exposing it to substantial risk but still guaranteeing sound returns? I checked BPI's Short term money market fund but it has this "Special Expense" quoted (Please see attached) which costs Php 2,000 p.a. I haven't checked with BPI yet but any idea if they charge it to you directly? (Php 2,000 is quite big of an expense!).

I currently have a maxi-saver account in BPI where i keep my emergency fund; it yields 2.250% gross interest p.a. (around 1.8% net after withholding tax) provided that no withdrawals are made within a month. the interest is also credited monthly so it's easy for me too keep track. but of course the 1.8% net yield is still quite low when you consider the annual inflation rate of around 3%. haha :)

With that i need your expert opinion on what is the best plan of action. i shall definitely consider it as an option in allocating my finances. Dealing with all the computations and options by myself is sometimes too taxing. :)

Thanks IJ.

Regards,
Alexander


Dear Alexander,

There's a saying, "You can't have you cake and eat it too." In finance, there's a similar saying, "There's no such thing as a free lunch."

Emergency funds are for emergencies, so they must be always readily available and liquid, and liquidity comes at a cost--lower returns. So I suggest to keep it simple and just park your emergency funds in a savings account. The extra return that you lose (~3% from a money market fund or time deposit minus ~1% from a savings account = 2% x 72,000 = 1,440 pesos per year) should be worth the extra liquidity and convenience that you gain.

If you want to invest in a money market fund, then by all means do so, but treat it for what it is--an investment in a low-risk, low-yield asset, and not an emergency fund.


***


Dear Investor Juan,

I just came your blog recently when was searching about UITF.

I just want to know your opinion on an idea that I'm contemplating. I'm in Australia and currently have a mortgage on a 3 bedroom unit I just acquire a year ago. I have about AUD 150K (PHP 6M) equity and with low interest rate at the moment (5%), I'm think of investing some of my equity in the Philippines in UITF/MF. I'm also looking at opening a Investment Manage Account in BDO or BPI. Do you think my idea is feasible? Will I likely earn more than 5% in the Philippines?

Kind regards,
Pinoy in OZ


Dear Pinoy in OZ,

What kind of investment gives you 5% a year in Australia? If that comes from fixed income securities or funds, you'll get the same of even a lower yield for the same kind of investment in the Philippines (the price we pay for a "better" investment climate). If that comes from equities, the local stock market has been able to provide more returns than that in the past couple of years (but understand that this does not guarantee that these high returns will persist in the foreseeable future). The point is, we can only compare returns of investments with the same risk, that is, fixed income to fixed income, equity to equity.

If you are keen on investing in Philippine securities, yes, you might want to consider getting investment/wealth management services. It's really a convenient way for Filipinos abroad to manage funds in the Philippines. I have just opened such an account, and will write about it this month. So stay tuned. :)

A Tale of Two Markets

IN THE NEWS

I arrived in Hong Kong exactly two years and one week ago. I decided then to take most of my capital with me and invest it and all future earnings in Hong Kong. Let's see how that decision turned out after two years...

Hong Kong Recession Risk May Increase On Exports, Tsang Says (Sep 3, 2012)

Hong Kong’s risk of a “technical recession” may increase after declines in exports and a slowdown in retail sales, Financial Secretary John Tsang said.

Hong Kong’s economy shrank 0.1 percent in the second quarter from the previous three months as the sovereign debt crisis in Europe capped export demand. China’s slowdown is dragging on trade, weighing on confidence and encouraging the million of mainlanders who visit each month to spend less on luxury goods.

The benchmark Hang Seng Index (HSI), down about 10 percent from this year’s high in February, was little changed as of 10:19 a.m. local time. Hong Kong’s retail sales grew in July at the slowest pace since the global financial crisis. The city’s exports fell 3.5 percent from a year earlier.

Performance of the Hang Seng Index in the past two years: -6.90%

Philippine Bourse Stock Sales Poised To Pick Up (Sep 3, 2012)

Philippine Stock Exchange Inc. (PSE) Chief Executive Officer Hans Sicat said share sales are poised to surpass the bourse’s full-year target as transactions accelerate toward the end of 2012.

Sicat sees three more initial public offerings being completed this year, he said in an interview last week, declining to name the companies. That would take the annual total to six, compared with five listings in 2011. There are enough funds in the stock market to absorb new IPOs or share sales by listed companies, he said.

Overseas investors have bought a net $2.15 billion of Philippine equities this year to Aug. 30, compared with $1.33 billion of purchases for all of 2011, amid optimism about the nation’s economic growth prospects. Philippine stock trading has averaged 6 billion pesos a day this year, compared with the 2011 average of 4.82 billion pesos, data compiled by Bloomberg show.

The Bangko Sentral ng Pilipinas cut its benchmark interest rate to a record-low 3.75 percent this year to spur spending and counter faltering global demand. The $225 billion economy grew 5.9 percent in the second quarter, faster than the 5.5 percent median prediction in a Bloomberg economist survey. Standard & Poor’s raised the Philippines’ debt rating in July to BB+, one step below investment grade and the highest level since 2003.

Performance of the PSEi in the past two years: +44.48%

It was not as bad as it seems, though. In the past two years, I bought in and out of the Hong Kong stock market a couple of times and was able to break even in that period. It's a bit disheartening to miss the incredible performance of the Philippine stock market in the past two years, but I'm definitely happy for those of you have benefited from the run. I don't regret my decision, not one bit; after all (and I'm sure someone already said this somewhere sometime), regret is for the weak.

ETFs and REITs for Investors Abroad

DEAR INVESTOR JUAN

Dear Investor Juan,

I've been following your blog for quite sometime and I really find it very informative. Just this month I started working here in Singapore and I would like to explore some investment opportunities here. I am particularly interested in ETFs and REITs and have been reading about them. However, I am having some difficulty in understanding since most of the explanations online are too "technical". I hope you can enlighten me.

Thank you.

Syd


Dear Syd,

Exchange traded funds or ETFs and real estate investment trusts or REITs are popular investment vehicles in more developed markets abroad such as Singapore, as you have mentioned, Hong Kong, and the US. They were designed to give "ordinary" investors like us an opportunity to invest more efficiently, so it's important that we learn as much about these investment instruments as we can.

I actually already discussed these topics in previous posts, but I don't mind discussing them again here briefly, and hopefully more simply.

Exchange traded funds

There are perhaps a hundred different kinds of ETFs available in the market, but the simplest are just pools of funds that are invested in either stocks or bonds, just like UITFs and mutual funds. There are two important differences between ETFs and UITFs and mutual funds, however. One is that ETFs are close-ended, meaning they have a fixed number of available shares and regulatory approval is needed before additional shares could be issued, unlike UITFs and mutual finds which are open-ended. Another difference is that ETFs are traded in stock exchanges whereas UITFs and mutual funds may only be sold back by investors to the issuing bank or financial institution; the implication is that whereas UITF and mutual fund unit/share prices only change daily, ETF prices change as they are traded, in real time.

Perhaps the most popular ETFs are index ETFs, be it stock or bond. A stock index ETF in Hong Kong, for example, would mimic the movement of Hong Kong's Hang Seng index by being invested in the component stocks of the index, much like equity UITFs and mutual funds. However, since index ETFs are not actively managed unlike comparable UITFs and mutual funds since the proportion of each stock in the fund is based on the composition of the underlying index and not determined by a professional fund manager, they are significantly cheaper; this is the main reason why we often hear investment gurus recommend index ETFs to investors. Finally, ETF investors earn as they do from stocks, from dividends and capital gains.

Real estate investment trusts

REITs are an important financial innovation in recent history. They give ordinary investors the ability to diversify into real estate-backed assets without having to shell out a huge amount of capital. Basically, a
REIT is pooled capital that is invested in income-generating real estate projects like commercial buildings or malls; investors participate by buying shares of the trust, which are also traded in stock exchanges, and also earn from dividends and capital gains.

While there also are investment funds like UITFs and mutual funds in countries like Singapore, ETFs and REITs often offer better and more inexpensive opportunities to diversify, so you might want to consider them first. A big portion of my capital here in Hong Kong is actually invested in a stock index ETF and a REIT, and I'm not worried a bit about these investments despite the global financial uncertainties we currently face. I'm not exactly sure how things are in Singapore, but as far as I know stocks are relatively cheap, in general, so it might be a good time to invest in a stock index ETF now; and I remember reading somewhere that the real estate market in Singapore is healthy especially compared Hong Kong's and China's, so it might be a good idea to buy some REIT shares as well (you have to do your own research about this first, of course). You may want to take a look at this previous post where I discuss specific investment alternatives in Singapore.

I hope you now have a better idea of what ETFs and REITs are, and are now hopefully confident enough to seriously consider investing in these assets. Good luck!

Investing in Hong Kong

DEAR INVESTOR JUAN

Dear Investor Juan,

Thank you so much for creating such a nice blog. I am learning a lot from you! And what made me admire you more is the lack of ads on your site!!! :)

I read from one of your comments that you are based in HK, is that right?

I just want to know if you can suggest any good online broker where I can subscribe to Monthly Investment Plan. I'd like to buy and invest in Blue Chip stocks. Is Boom HK Limited a good choice?

My goal is long-term savings, and of course, capital growth as well.

I have an account with HSBC HK. They also have a similar plan, like those offered by BDO EIP and BPI. I haven't compared the rates yet vs Dah Sing Bank.

I already invested in HSBC's UITF - HSBC Asian High Yield Bond Fund a week ago. It is my first ever investment! It was on IPO that time and I was kinda giddy and excited to make an investment.

But when I re-computed everything... The overall net gain is just 3.5% per annum, with monthly dividends. I'll wait for 5-10 years, most probably, before I sell it, hopefully with lots of gain.

HSBC is also offering stock monthly investment plan, but I'd like to compare it first with other online brokers.

Thanks a lot,
Delphino


Dear Delphino,

Thank you very much for your flattering words. Whatever minimal income I do not earn by not running ads is more than made up for by the trust that I gain; this trust is important in reassuring readers like you that I say what I say because it's what I believe is right, not because of some self-serving motive.

Now for your questions.

Yes, I am based in Hong Kong. I've been here for around nine months. I bought my first HK security in October 2010, less than two months after arriving. In my opinion, based on my limited experience, the best securities or investment broker is whichever major Hong Kong bank you already have an account with (in my case it's Hang Seng Bank, while you have HSBC). Here are my reasons for saying this.

First, they're all basically the same. Unlike in the Philippines, most, if not all, commercial banks in Hong Kong also have securities trading licenses, so you can invest in any stock or investment fund (mutual fund or UITF) available in Hong Kong through your bank. Also, as far as I know banks and non-bank brokers charge the same fees, so there's no cost-wise advantage to switching.

Second, one thing that sets your bank apart from other brokers or even other banks is your relationship with your bank. You already know how (most) things work, and with one online platform you can conveniently manage all your other accounts (e.g., savings, investment, securities, credit card, etc.). Also, a better relationship with your bank could lead to more direct benefits in the future, like better credit scores, faster loan approval, and lower loan or credit card rates, for example.

Finally, your bank stands as the least risky choice, just because it is the alternative that you're most familiar with. In your case it's even better since you're using HSBC, which is arguably the biggest bank in Hong Kong; if you can't trust HSBC with your money, which bank can you trust, right?

To summarize, if you want to buy Hong Kong stocks or investment funds, or subscribe in a monthly investment plan like you mentioned, I suggest you just do it with your bank since there's no real advantage to switching or looking for another broker.

Regarding your fund of choice, your bond fund's 3.5% estimated annual return is decent, and comparable to similar offerings in the market. However, one thing that keeps me away from open-ended investment funds in Hong Kong (i.e., mutual funds and UITFs) is the steep fees, with most funds featuring high subscription and/or redemption fees on top of annual management fees upwards of 1.25% per year.

If you believe in the wisdom of passive investing, then you should not be paying such high fees for fund management. You can hold a well-diversified and inexpensive portfolio by investing in index exchange traded funds (ETFs), which are more-or-less behave the same comparable investment funds, but without the steep fees. These are traded like stocks, and so are also available through your bank's online platform (you should open a securities trading account with HSBC if you don't have one yet). The required minimum investment of ETFs depend on the current price and the minimum lot size, but it typically runs at 5,000 HKD.

In my opinion, a Hong Kong investor only needs to consider two ETFs to construct a well-diversified portfolio: one that tracks the Hang Seng Index and an index bond fund, weighted based on the investor's risk profile or age (i.e., a higher proportion of the bond fund for the more risk averse or older investor). As such, a majority of my own portfolio currently consists of the Tracker Fund of Hong Kong (stock code 2800) and the ABF Hong Kong Bond Index Fund (stock code 2819). However, as you gain more experience and become more comfortable managing your investments, you might want to further diversify your portfolio by investing in an internationally-diversified stock ETF or even a real estate investment trust (REIT). You can check out these lists of ETFs and REITs available in Hong Kong.

That's it. I hope I was able to satisfactorily answer your questions, and I hope you find the alternatives I presented here helpful. If you have further questions, don't hesitate to drop another line. Good luck!

Now, Pinoys Abroad Can Invest in BPI UITFs through BPI Express Online (Well, Sort of...): Part 2

This was my email to BPI Express Online right after I found out that I could not complete my investment account application online. I have also attached a screenshot of the final page of the online application process to the email (view the screen cap here.)


Seriously BPI? After all that time I spent filling out forms, you want me to print them and deliver them by hand to the nearest branch? This is what you mean when you boast that you have "the country's first full-service online investment platform" on your press releases (http://business.inquirer.net/money/topstories/view/20110430-333932/BPI-offers-online-investment-services). You really think this really is the best way to tap overseas clients like myself? I mean, I have already verified my identity when I applied for my savings and expressonline accounts right? Is there really a need to see me in person one more time?

I maintain a personal finance blog that talks about these things. If nothing is done about this soon (like, next week), maybe I should let my readers know that your claim is false and they should not even bother filling out those forms since they would have to go their "nearest branch" to do these things anyway.

I really hope you can fix this annoying, unnecessary, and ridiculous "bug" soon, for both our sakes.


After reading this email several times over, I now feel deeply embarrassed for making that not-so-subtle threat: it just sounds so cheap and hollow. Even if I felt it was necessary and justified at that time, I know that I could have phrased my intentions and emotions better. For that, I apologize. Anyway.

This was BPI Express Online's a couple of days after (May 3).

And BPI Asset Management's email on the same day (view the screen cap here).


We appreciate your effort of raising your concern to us. You do not have to submit personally the forms. The following options are available for you:

         1. Personally hand carry the documents to the preferred branch
         2. Mail the documents to the preferred branch
         3. Send the documents to the branch via a representative

The branch needs to receive the documents so we can facilitate creation your investment account.

Please let us know should you be needing anything else regarding the matter.

Thank you.


Finally, my response, which is the final piece of this drama (view the screen cap here).


It's unfortunate that the other alternatives you have provided still involves significant costs, like cash to pay for a courier service or loss of goodwill (from a "representative" who would be so kind as to deliver documents for me from Hong Kong to Manila). I must admit that the idea of being able to finally manage my BPI accounts and avail of the bank's other services, particularly the one your division provides, with just one online platform, and remotely from anywhere in the world, made me feel more than a bit excited: I mean, finally, a Philippine bank is able to implement a bank service delivery system that is already standard in Hong Kong and many other countries.

Had you been able to roll out this system the way you made it seem in your press releases, you would have gotten a lot of business from me and many other overseas Filipinos looking for convenient and inexpensive ways of investing in the Philippines. But alas, that is not the case. So until that happens, I guess I will have to take my business elsewhere, and advise the people who ask me questions about such matters to do the same.

Thanks for the prompt replies, though. :)


As a post script, let me just say two things. First, in fairness to BPI, this inability of the platform to complete investment applications online is more a reflection of the limitations of existing banking laws in the Philippines than any fault on the bank's part. Second, BPI is the first Philippine bank to offer such a unified online banking system in the Philippines, regardless of its imperfections; whatever inconvenience its account approval processes might entail, the resulting improved efficiencies in making future transactions should more than make up for it.

Now, Pinoys Abroad Can Invest in BPI UITFs through BPI Express Online (Well, Sort of...): Part 1

So, I came across this article press release from the business section of the Inquirer a few days ago. Here's an excerpt if you're to lazy to read the entire thing:

"BPI asset management and trust group—a leading wealth management unit in the Philippines with close to P600 billion in assets under management—launched Tuesday night a web-based facility that allows investors to initiate mutual funds and unit investment trust fund (UITF) transactions through the Internet."

"Through this platform which can be accessed at www.bpiassetmanagement.com, investors can access portfolio information, explore further investment opportunities, subscribe to additional funds, redeem investments and make regular contributions online."

This news actually got me quite excited. You see, even before I left for Hong Kong, I had been looking for ways to manage Philippine UITF investments remotely. Unfortunately, such a service was still not available at that time--then this small nugget of good news comes along.

BPI president Aurelio Montinola III is even quoted as saying:

"We’re quite excited about this. Not only does this open investment capacity to Metro Manila clients. It opens to provincial and overseas clients which comprise a large community. And it’s going to be an active community."

So, wow, this service was even developed with investors like me in mind; that made me so goddamn special!

Don't even bother going to the website the article mentioned (http://www.bpiassetmanagement.com/), it will get you nowhere since there's no way to log in or sign up or anything. Just go directly to your BPI Express Online account and navigate to the following link:

The site will ask you to accomplish several forms, including one which assesses your risk aversion and recommends funds that best suit your risk profile. The entire process took me more than a few minutes; don't make the mistake of spending too much time on any one page since BPI Express Online only gives you like 2 minutes until it flashes the following prompt

and automatically logs you out of your session (it happened to me twice when I was trying to apply).

Eventually I reached the "final" page, upon completion of which, led me to the following message.

I was like... what... the... @#$%? I thought you guys were thinking of overseas Pinoy investors when you were developing this thing? And now, after spending all that precious time filling out forms and taking your stupid risk assessment test, you're asking me to print the forms I've already accomplished online (and presumably you already have) and deliver these lousy pieces of paper to the nearest branch? What for, my lousy signature, proof of my identity? Didn't I already give you these things when I opened my bank and Express Online accounts? What are we, still in the @#$%ing middle ages? If this is what being "one step ahead" with technology means, I'm afraid to even imagine what being left behind looks like. And by the way, I'm in Hong Kong, and the nearest branch from here is in @#$%ing Ilocos Norte, you mother@#$%ing morons!

Anyway, it took me 5 minutes tops to gather my senses and think of a more constructive way of dealing with the situation. That's when I decided to send an email to BPI Express Online. I'll show you how it went in Part 2.

Investing in Singapore, Part 2: The Devil is in the Details

DEAR INVESTOR JUAN

Just to recap, in Part 1 we pretty much established the following things:

1. 50,000 pesos should be enough to start investing.
2. Invest in the long term.
3. Investing in a business in the Philippines is not advisable if you're working/living abroad.
4. If you're working/living abroad, better just invest where you are (in Jay's case, Singapore) so you can be more hands on.

Now we're ready to go into the nitty-gritty of investing in a more developed Asian market like Singapore.

5. Next step? Open an Internet banking account with your bank, in your case Jay, DBS. One important advantage of investing in countries like Singapore is convenience; Singaporean banks allow depositors to invest using a single bank account with an Internet banking service, unlike banks in the Philippines where investments can only be done over-the-counter, or with a separate trading account like in the case of BPI Trade.

6. Check out the the available investments. Looking at the investments page of the DBS website, we see that the bank offers three product types to individual investors: unit trusts, structured deposits, and treasury products.

Unit trusts are the same as the UITFs we have in the Philippines, and you'll find a more informative and user-friendly list from DBS's Asset Management website.

Structured deposits are derivative investments whose value depend on underlying assets, like bonds or stocks. Basically, it's a bet that the price of some asset, or anything that fluctuates like foreign exchange rates or interest rates, will move a certain way.

What DBS refers to as "treasury products" actually covers a diverse group of securities like currencies (the real thing), currency-linked investments (derivative investments, just like structured deposits), and government and corporate bonds.

7. So many, so complicated. What to choose? Since you're just starting out, I suggest that you stick with the more traditional investment funds offered by DBS, those that are invested in stocks, bonds, or a combination of both. Derivatives like structured deposits and currency-linked investments are too risky and complicated, in my opinion, for ordinary folk like you and I. And one important investment advice we can get from Warren Buffet is to never invest in something you don't understand.

In choosing the best fund for you, you can start by looking at the fact sheets from the DBS Asset Management website, like this one for the MyHome Fund - HomeSteady fund (sounds tailor-made for you, ain't it, Jay?). It turns out that there's nothing special about the fund, except the name: it's just an 80/20 combination of a Singapore stock index ETF and bond index ETF (in case you missed the article about ETFs, click here). This means, instead of paying 3% up front and 0.5% every year for a fancy-sounding investment fund, you can actually brew your own combo by investing in the ABF Singapore Bond Index Fund and DBS Singapore STI ETF on your own, at whatever proportion that suits your fancy (just remember the rule of thumb: higher risk, higher return if you invest all in stocks) with significantly lower fees.

These two index ETFs are cheap, good-enough funds to start with; all the others are too expensive, in my opinion. When you do get the hang of investing and are willing to take on more risk, then you can start investing in individual stocks by opening a DBS Vickers Online account, which will also give you access to investments in other markets like Hong Kong, Canada, and the US. Then, as they say, the world will have become your oyster. :)

One last thing. Since you're an account holder, you can always ask the DBS customer service reps questions about the specifics of opening accounts and investing in funds. Don't hesitate to take advantage of what you're entitled to.

Investing in Singapore, Part 1: First Things First

DEAR INVESTOR JUAN

Juan dude,

"You're so money!" - Swingers

Got to read some of your articles and found them enlightening, haha. So, here I am hoping for a dash of your opinion bro.. Ok here's my situation. I am 28, an engineer working in Singapore and I recently got to think of getting my feet wet on the "investment thing". For now, it's baby steps though. So I'm gonna need an insider's point of view on this... As they say, engineering and accounting, do mix well like oil and water, so help me through it bro. Question is how do I start? For now, I am willing to break my piggy bank of 50,000 pesos for investment. Long term or short term? I'm thinking of maybe around 6 months? If it's longer-term, maybe a lesser figure then. At first I'm thinking of starting up a microbusiness, considering the amount, but then, since I am based here in Singapore, I think it's out of the question already. So my next idea is to invest through the bank. UITFs? Money market funds, equity funds? What do you think? My knowledge regarding this is so minimal, that my understanding of it is... one's higher risk/higher profit, and the other ones lesser risk/gain, hehe.. (Tama ba?) and I think I'm open for higher risk, hehe... Another thing is since I'm in Singapore, is it possible to start an account locally there (BDO? Internet banking?), or would I have to invest with a local bank here (DBS is my trusted bank here. I did look through their trust investments, but I can't really make any decision about it); you might wanna check it out too, if you have the luxury of time, 'cos I can't seem to understand or decide if it's worth it.

To sum it up, I'm still clueless, but ready to jump in, hehe...  So, appreciate to hear from you pare, privately, or publicly.

Salamat,

Jay


Yo, Jay, dude! :)

Nice to hear from you, and even better to know that you have decided to "get your feet wet" and invest. That's a very, very good first step, believe me; a lot of people have trouble even getting past that.

You have a handful of concerns, so let me go through them one by one so that I won't miss anything.

1. Amount? 50,000 pesos is enough money to start with. With 50,000 pesos, you can invest in most available funds, and even individual stocks, both in the Philippines and in Singapore. But it does not mean you should end there. Try to set aside 5 to 10% of your monthly salary in a savings account and invest whenever you accumulate 50,000 pesos or thereabouts.

2. Short or long term? Definitely long term, regardless of the size of your investment. Why? I'm sure you neither have the time nor the patience to actively play the investment game; don't get me wrong, most of us wouldn't. The best thing to do, in my opinion, is invest, close your eyes, and cash out at the opportune time (when you get married, decide to buy a new house, retire, etc.). Remember, the longer you wait, the higher the chance your investment will have grown appreciably, and that's a fact.

3. Microbusiness? Like a franchise or something? One thing that kind of investment requires is time, yours or someone else's. I've actually been thinking of the doing same thing: I've playing around with a business idea or two this past year, but I know that all of that will have to wait for either me to come back to the Philippines, or find a suitable and capable business partner who can manage the business in my stead. So until you find a way to resolve this issue, like me, you'll have to stick with investments you can easily manage while you're there.

4. Philippines or Singapore? Even before coming here, I've been looking for ways to manage investments in the Philippines (specifically, in UITFs) while I'm in Hong Kong; suffice it to say, I was not able to find one. There are advantages to investing in Philippine funds: fees are lower and the entire system is significantly more conservative than what they have in the US, Hong Kong, and Singapore, so we are somewhat less affected by global financial crises, like what happened in 2008.

Of course, there are also valuable advantages to investing in more developed markets like Hong Kong and Singapore. Unfortunately, I now have to go back to studying, so I will have to talk about all of these things in Part 2. :)

5 Things You Need to Know About Exchange Traded Funds

INVESTMENT SPOTLIGHT

On Friday, I decided to buy Hong Kong securities for the first time. Most of you know that I'm an ardent opponent of stock picking, so to put my money where my mouth is, I decided to go by the way of diversified investment funds. Like all other commercial banks in Hong Kong, Hang Seng Bank, where I decided to open and maintain an account, offers a more exhaustive and thorough list of securities and investment services than the banks in the Philippines. For my particular investment preference, aside from open-ended investment funds (which are basically the same as the mutual funds and UITFs we have back home), Hong Kong banks and other financial institutions also offer exchange traded funds or ETFs, which is something we don't have in the Philippines.

On Friday, I bought 100 shares of Hang Seng Bank's Hang Seng Index ETF (stock code 2833) at the prevailing market price of 233.20 HKD per share. At the end of today's trading, the stock closed at 240.00 HKD per share, netting me gross paper gains of 680 HKD over the weekend, or 3,772.67 pesos. Not bad at all, but of course that's mostly due to luck than anything else.

So what are these ETFs, and why are they so popular in a lot of markets around the world? And how are they different from the more familiar mutual funds and UITFs that we have in the Philippines?

1. ETFs are investment funds that can be traded in stock exchanges, unlike mutual funds and UITFs that may only be sold by and redeemed through financial institutions like banks. Also, ETFs are closed-ended, with a fixed number of outstanding shares available, unlike open-ended mutual funds and UITFs; this is what makes trading ETFs in stock markets possible.

2. ETFs are also invested in underlying securities like stocks, bonds, and other instruments, like other investment funds. The ETF I purchased tracks the Hang Seng Index of the Hong Kong stock exchange, and is thus invested in the component stocks of that index.


3. ETF share prices are determined by the market. The share price of ETFs are driven by supply and demand forces, unlike open-ended funds whose net asset values (NAV) are computed at the end of each trading day. Therefore, while a lot of ETFs are designed to closely follow the movement of certain indexes, ETF returns can still deviate significantly from the performance of the underlying assets or index.

4. ETFs are much cheaper than other investment funds. While a lot of open-ended investment funds in Hong Kong charge around 3% per year in fees, ETFs are just covered by the usual trading charges, which amount to just around 0.6% per transaction. Therefore, if you are a firm believer of passive over active investment, then ETFs are the way to go since you won't have to pay for high management fees.

5. ETFs pay dividends to shareholders, unlike mutual funds and UITFs that reinvest all gains back into the fund. For example, the HSI ETF I bought has a historical dividend yield (dividends divided by the share price) of 2% per year. This yield makes up a portion of the total returns earned by investors, on top of capital gains when the share price appreciates.

It's unfortunate that ETFs are not available to investors in the Philippines; the funny/frustrating thing is that an ETF based on Philippine stocks has already been made available in international exchanges for international investors, but it's not available to us poor Investor Juans. Still, there are rumors that ETFs will soon be introduced in the Philippines. Would you be interested in buying some when they do become available?