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For 2020, the Philippine Stock Exchange index (PSEi) registered a -8.64-percent return.

This is largely unsurprising given the hard lockdowns, virus infection rate, and lack of support to the local economy. What was a brief ripple for some economies like Vietnam and Taiwan — still registering positive gross domestic product for 2020 — the result of the coronavirus disease 2019 (Covid-19) was a tsunami for the Philippines.

Overseas markets, however, surprised.

For 2020, the US’ S&P Index gave a gain of 16 percent and its tech-heavy Nasdaq gave a whopping 43.6 percent; some emerging market funds gave as much as 13.05 percent while some global funds gave 18.55 percent; one tech-related offshore fund even gave 32.94 percent.

The lesson here is stark: if you invest only in the Philippines, you are missing out. A lot.

Yes, the Philippines is still in a demographic sweet spot and its fundamentals largely intact. But invest only in the Philippines and you tie your portfolio returns that of the Philippines only.

 


Consider this: for the previous one year, the PSEi gave around 26 percent; some offshore funds, however, gave much more. One fund invested in Asian equities for the same period gave 45.77 percent; an emerging market fund, 69 percent; and a global financial fund, a whopping 96 percent. Imagine if your portfolio aren’t invested in these, then you are really missing out a lot.

Diversification is one of the dictum in investing: diversification among asset classes, investment instruments, currencies, and yes, even on geographies. Investing in only one country runs country risk: i.e., the risk that should a significant market downturn or volatility happen in that country, then all your portfolio goes down with it. If you have holdings outside, however, then that part of your portfolio is well-immunized from the volatilities of the local market. This ensures that you have different markets and companies working for your portfolio, and dampening, if not pulling it up from the negative downturn of its local counterpart.

I have a client under advisory and, just recently, we had a review of his portfolio. For this part, I have opted to diversify his holdings into three themes, knowing that he already had bulk of his investments in the local market: Asia (32.74 percent of the total portfolio), global technology (at 29.48 percent of the portfolio), and global markets (37.7 percent of the portfolio).

For 2020, this portfolio gave him a total return of 12.57 percent, outstripping the local stock market index (that gave only 8 percent) by 21 percentage points — we basically beat the local stock market by a large mile.

How do you invest globally then?

Before, you have to be a very valued client of an international bank to get this offshore footprint. But now, the financial industry is already evolving to offer these investments locally — even in Philippine pesos. Trust companies, asset management companies, and insurance companies are now expanding their product suite to offer consumers investments in global companies.

The roster is exciting: you geography-focused funds in regions like Asia, America and Europe; themes such as developed markets and emerging markets; sectors like global consumer, global finance and global tech; and fund directions such as fixed income, balanced and equities.

The structures are also interesting. Some funds invest directly into the stocks or bonds; some invest in one fund called a “feeder dund” as it “feeds” into just that one fund, and; some adopt a structure of ‘fund-of-funds” — a fund that has a lot of funds into it. As the local financial market evolves, so our options widen, and the opportunity to manage our risk and returns, better.

Yet with these added choices, one may feel overwhelmed: which fund should you go for? How should I mix this with my local holdings? Should l only invest in the fund with the highest return? Which institution should I go to? These and all other questions can be addressed best with a financial planner that has the competence in managing these offshore investments, for the client’s best interest.

 


Rienzie Biolena, RFP, CWM, CFC is president and chief financial planner of WealthArki and Consultancy, a financial planning firm aligned with international best practices. You may contact him at rienziebiolena@wealtharki.com.




 
 

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