Achieve long-term financial success

A good protection plan should not only protect your wealth today, but also consider the value of your future earnings over your lifetime, in today’s terms. It should provide a safety net, shielding both your wealth and future earnings capacity, ensuring that your financial goals are not side-tracked or delayed due to unforeseen life events. And it is also a great tool to ensure systematic planning for future needs, including leaving behind a legacy for your loved ones.

ESG is a way of investing, which considers potential ESG risks and opportunities, alongside traditional financial analysis. It can be applied in both the Foundation portfolio and Opportunistic investments. In terms of allocations in your Foundation, there are ESG integrated funds which can be either multi-asset, equities or fixed income focused. These funds take into consideration material environmental, social and governance factors. In terms of Opportunistic ESG investments, these fall under sustainable thematic ideas, such as climate change, water, electric vehicles. There are also single securities available which have a high ESG score.

Investing in overseas assets generates diversification benefits, but also means investors become exposed to currency risks of their assets relative to their future liabilities. The impact of this exposure is factored into the SAA construction process.

When deciding whether to hedge the currency exposure, it is important to understand the implications on the potential volatility of the holdings in local currency terms. Our recommendation for bonds, absent a strong view on currency performance, is generally to hedge the currency exposure, where FX moves can easily dominate realised returns. However, for equity holdings, we would generally leave the currency exposure unhedged.

Employing leverage has the potential to increase returns on an asset or a portfolio if the return is above the client’s funding cost. However, leverage can magnify losses as well. If the value of the investment holdings declines, then leverage magnifies the portfolio loss. As such, employing leverage increases the overall volatility of the portfolio.

There are 4 considerations when it comes to employing leverage and to what extent. These relate to both the nature of the asset or portfolio being leveraged and the client’s ability to weather different outcomes:

• The client’s risk tolerance: Leverage increases the volatility of returns. It should be consistent with the client’s ability to weather this volatility at both the financial and emotional level.
• The implications of a margin call: The biggest fear for an investor should be the risk of permanent financial loss (rather than transitory losses which can be recouped over time). Using leverage introduces the risk of being forced to sell holdings regardless of the forward-looking outlook. This means the client would not be able to participate in any ensuing recovery. The less liquidity the client can generate in a situation when there is a severe market dislocation, the less leverage should be used.
• The outlook for the asset or portfolio being leveraged: If the client has a high level of conviction that the investment will perform well, then more leverage may be justified.
• The volatility of the underlying asset: The greater the volatility of the underlying asset, the less leverage should be employed.