REPOST: The case for investing in emerging markets

Emerging markets are fast becoming the prime movers of various economic phenomena. As such, they can provide explosive opportunities for portfolio boost and diversification as they are expected to grow two or three times faster than the developed world. Here are more insights from USA Today:

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U.S. vacationers aren’t the only ones that should broaden their horizons and go overseas. American investors should think about it, too, Wall Street pros say.

With U.S. stocks near record highs and up 9% in 2017, it’s easy for Main Street investors to stick to a U.S.-centric portfolio. But that strategy means they won’t be able to take advantage of strength in shares trading developing countries.

The iShares MSCI Emerging Markets Index ETF (EEM), which invests in places like China, South Korea and South Africa, has broken out to new highs this week and is at its highest level since May 2015. The ETF is up more than 22% this year, more than double the return of the U.S. stock market.

Factors driving the gains in emerging markets: a rebound in the global economy; a sense that years of better U.S. stock performance will give way to stronger gains from abroad; cheaper valuations in developing markets, and continued hints from the U.S. central bank that it won’t too hastily pull back on stimulus that is beneficial to emerging markets. Barring a global crisis, emerging markets are likely to fare well.

“It’s a market we want to have exposure to,” says Todd Sohn, analyst at Strategas Research Partners. Sohn says performance is being driven by gains in Hong Kong stocks and a recent surge in Taiwan shares, two countries with big weightings in the emerging market index.

Adds Joe Quinlan, chief market strategist at U. S. Trust: “U.S. investors should think long-term and recognize future growth, consumption and corporate earnings will emanate primarily from the likes of China, India and Mexico and others over the next decade.”

Robots may takeover but these industries will never go obsolete

Technology is evolving fast and while its initial objective was to help humanity live a better and more convenient life, its unprecedented boom in several industries has contributed to a whole new and impressive ways of providing products and offering services, raising a very important question: will technology change the way we do work and will it finally replace human labor?

 

To acknowledge the role of technology is shaping the labor industry is no longer a product of fiction. In fact, some have predicted that many jobs in several industries will become obsolete in the future while others, will continue to develop and prosper. So which industries will never go obsolete? Here are some of them:

 

Food production

Image source: rubios.com
Image source: rubios.com

The diverse nature of the food industry is what secures it from becoming obsolete. Instead, it will evolve and grow with technology, helping with production, processing, packaging, preservation, and agriculture, etc. Experts have predicted that the long-term demand for food and its sectors will be strong and stay intact unless humans can finally think of a substitute source of sustenance, energy and nutrition.

 

Medicine and healthcare

Image source: petersonhealthcare.org
Image source: petersonhealthcare.org

Humans are constantly exposed to numerous health risks, which means that developing new medicines and equipment to treat various conditions will never cease. Players in this industry are in constant search for the best solutions to increase life expectancy and keep everyone healthy. As such, the medical field has been one of the strongest and most resilient of all industries.

 

Specialized services

Image source: LOM Financial
Image source: LOM Financial

Services requiring the specialty of professional workers are here to stay. No matter how advanced robots may become, it can never replace labor that requires skills, creativity, and human touch such as management consulting, financial services, legal matters, engineering, information technology, architecture, and design.

 

Entertainment and media

Image source: nyfa.edu
Image source: nyfa.edu

Music, television, games, publishing, advertisement, motion pictures, and everything that the industry has to offer will grow in demand and secure its place in the high-tech future. The demand for these products and services currently delivers huge revenues to many countries around the world and it will continue to do so – thanks to both human talent and technology, the entertainment and media industry will endure to create, innovate, and become more diverse in the years to come.

REPOST: The Importance Of Time Horizons For Investing (And Beyond)

Volatility and time are two of the most important factors in investing, probably even more important than the amount of capital invested itself. Investments held for longer periods tend to exhibit lower volatility than those held for shorter periods. Here is an article on Forbes for more insights:

Time

When it comes to evaluating market risk, your time horizon is a key factor to consider. As a general rule, shorter time horizons require more caution than do longer ones. I would also argue, however, that this concept applies to many areas of investing—and beyond.

Long-term investing

Let’s start with why longer-term results can be more predictable than shorter-term ones. The answer is, simply, averaging. One data point might be noisy, but as you accumulate more and average them, the outliers tend to offset each other. As a result, the signal starts to dominate the noise. The more data points you have, the closer you get to the expected result. Investors with 40 years, for example, can look at longer-term return goals with a reasonable expectation of actually getting them. But for shorter time frames, the noise can dominate. Hence, the extra caution needed as you get closer to retirement.

This trend also works in reverse. Looking at short-term results in the past (e.g., the best-performing fund on July 22, 2016, from 1:00 to 1:45 P.M. ET!) is probably looking at noise. Longer term, over five to ten years, is likely a reasonable indicator of repeatable performance. Similarly, when we look at economic data, monthly data bounces around a lot. But the year-on-year changes are much smoother and more reliable.

Translating this to the actual investment process, we have the justification for longer-term investing. Any fund will do well in some environments and less well in others. Holding for the long term allows you to receive the average return, without trying to time the good and bad periods. Planning for the long term lets you match the actual performance of your portfolio with your needs. Further, planning to consistently put money in regularly for the long term lets you take advantage of times when the market is down (i.e., cheap).

Maximizing your chances of success

The big takeaway here is that by matching the time horizon of your goals with that of your strategy, you are maximizing your chances for success.

When your time horizon starts to get shorter, particularly when it’s below the ten or so years when performance is likely to be predictable, your goals start to become vulnerable to the noise inherent in investment returns. At that point, you need to consider strategies to realign your time frame with a time period that is reasonably predictable.

One way to do that? Simply place enough money in very-low-risk assets, allowing the rest of your portfolio to have the extra time to recover, if necessary. If your time frame is seven years, say, and you set aside three years of spending needs in low-risk assets, you would not need to touch the rest until ten years. Once again, this would match the predictable time frame against your needs.

Minimizing risk

None of this is an exact science, of course, and there are many assumptions baked into what I have discussed here. As a guideline to how to think about your goals and how they relate to your investments, though, this kind of analysis can provide a meaningful framework for exactly what you might want to do, when you might want to do it, and why it might work.

As always, understanding the risks ahead of time and then planning how best to minimize them is the best recipe for success, in investing or anything else. Understanding your time frame and that of your investments is a great way to minimize the risk that noise can present to your goals.

Sovereign Wealth Funds: Building intergenerational equity

Image source: institutionalinvestor.com
Image source: institutionalinvestor.com

 

It was in the early 1950s when the Kuwait Investment Authority established the world’s first sovereign wealth fund (SWF) as a way for the Gulf state to diversify its investments, anchored largely by its excess revenues from oil. With its primary role as a practical solution for a nation with a budgetary surplus, it has been later on adapted and created by other resource-rich and export-orientated sovereignties.

SWF is a resource that helps stabilize a country’s economy. In definition, it is a government-owned fund allotted in investing into various financial assets for two main purposes: to gather savings for the country’s future generation, and the diversification of their total income base.  This is a more practical approach in order to take advantage of a nation’s excess money, funneling it into investments than just letting it stay idle in the central bank.

Sovereign wealth funds are classified depending on how they are financed: commodity and non-commodity.  Commodity SWFs are primarily created by revenue surpluses from exporting major commodities such as oil, metallic ores, and diamonds; the latter, meanwhile, is usually funded by an excess of foreign currency reserves from current account surpluses.

Many countries establish SWF and are motivated by different economic and political circumstances. One example is how the United Arab Emirates create a huge part of their funds from their oil exports. Because of this, they need a reliable solution to protect the surplus reserves from oil-based risks and this is where SWF does its work—allowing the country to sustain or even accumulate more profits.

In the age of globalization, SWFs have been proven to contribute in developing assets in need of a substantial capital.  Because of its unique characteristics and its long-term benefits, countries around the world can create a brighter economic future for their citizens and the generations to come.

REPOST: Top 10 Hot Artificial Intelligence (AI) Technologies

In the very near future, AI can already be as ubiquitous as smartphones in many business transactions, operations, and even customer management systems. Here are the 10 hottest artificial intelligence techs that are rapidly shaping up the business world, according to Forbes:

 

Forrester_AI_Corrected

The market for artificial intelligence (AI) technologies is flourishing. Beyond the hype and the heightened media attention, the numerous startups and the internet giants racing to acquire them, there is a significant increase in investment and adoption by enterprises. A Narrative Science survey found last year that 38% of enterprises are already using AI, growing to 62% by 2018. Forrester Research predicted a greater than 300% increase in investment in artificial intelligence in 2017 compared with 2016. IDC estimated that the AI market will grow from $8 billion in 2016 to more than $47 billion in 2020.

 

Coined in 1955 to describe a new computer science sub-discipline, “Artificial Intelligence” today includes a variety of technologies and tools, some time-tested, others relatively new. To help make sense of what’s hot and what’s not, Forrester just published a TechRadar report on Artificial Intelligence (for application development professionals), a detailed analysis of 13 technologies enterprises should consider adopting to support human decision-making.

 

Based on Forrester’s analysis, here’s my list of the 10 hottest AI technologies:

 

  1. Natural Language Generation: Producing text from computer data. Currently used in customer service, report generation, and summarizing business intelligence insights. Sample vendors: Attivio, Automated Insights, Cambridge Semantics, Digital Reasoning, Lucidworks, Narrative Science, SAS, Yseop.
  2. Speech Recognition: Transcribe and transform human speech into format useful for computer applications. Currently used in interactive voice response systems and mobile applications. Sample vendors: NICE, Nuance Communications, OpenText, Verint Systems.
  3. Virtual Agents: “The current darling of the media,” says Forrester (I believe they refer to my evolving relationships with Alexa), from simple chatbots to advanced systems that can network with humans. Currently used in customer service and support and as a smart home manager. Sample vendors: Amazon, Apple, Artificial Solutions, Assist AI, Creative Virtual, Google, IBM, IPsoft, Microsoft, Satisfi.
  4. Machine Learning Platforms: Providing algorithms, APIs, development and training toolkits, data, as well as computing power to design, train, and deploy models into applications, processes, and other machines. Currently used in a wide range of enterprise applications, mostly `involving prediction or classification. Sample vendors: Amazon, Fractal Analytics, Google, H2O.ai, Microsoft, SAS, Skytree.
  5. AI-optimized Hardware: Graphics processing units (GPU) and appliances specifically designed and architected to efficiently run AI-oriented computational jobs. Currently primarily making a difference in deep learning applications. Sample vendors: Alluviate, Cray, Google, IBM, Intel, Nvidia.

 

Read the full article on this PAGE.

Building blocks of growth: Cities with the best infrastructure

Mercer, a global consulting firm, annually carries out a survey to help them rank the quality of living of various cities around the world. And this year, in the 19th Quality of Living Ranking, city infrastructure gets its own ranking, as Mercer believes that multinationals pay close attention to this when establishing overseas offices and sending workers abroad.

 

The survey considers the following aspects in ranking each city: traffic congestion, public transportation, the range of international flights available from local airports, telephone and mail services, electricity supply, and access to clean water.

 

Image source: The New York Times
Image source: The New York Times

 

Overall, coming in first place, and the only Asian country in the top five, is Singapore. In fact, Singapore has done so well in infrastructure that the World Bank has decided to create an Infrastructure and Urban Development Hub in its Singapore branch. Citing Kyle Peters, World Bank Senior Vice President for Operations,

 

“This agreement with Singapore to create the World Bank Group’s first global Infrastructure and Urban Development Hub is built on our mutual belief that sustainable infrastructure and urban development are critical to fostering economic growth, improving the quality of life of the poor and building opportunities for more equitable prosperity.”

 

And despite political and financial turmoil in Europe, the succeeding four ranks have an overwhelming majority of European cities with Germany’s Frankfurt and Munich both tied in second place. After all, both cities are known for their transit and airports, with Frankfurt known for having the “largest airport in continental Europe and the second-largest European train station” and Munich for having a vast system of metros, both above an underground.

 

Image source: metroeasy.com
Image source: metroeasy.com

 

Copenhagen, Denmark, bagged the fourth place. While the most popular mode of transportation here is the bicycle, Copenhagen also has a huge network of public transportation. Dusseldorf in Germany rounds up the top five.

 

In almost every case, quality infrastructure is the most important consideration when measuring a city’s capability to provide high living standards for its citizens, attract foreign investment, improve business operations, and display a positive overall reputation. Infrastructure is most especially critical for investors who want to make sure that they are pouring their assets in a globally competitive and vastly sustainable city.

Fundamentals: The mechanisms of the futures market

In the capital market, a trader has several options and investing opportunities in which he can foray into, depending which ones suit his needs, goals, risk profile, and personal preferences best. One of these is the futures market. Basically, buyers and sellers create and finalize agreements by entering into futures contracts. It is stated within the contract how much goods will be paid for and its date of delivery.  As The Balance defines it, a future contract is “an agreement between a buyer and seller of the contract that some asset—such as a commodity, currency or index—will be bought or sold for a specific price and quantity, on a specific day, in the future (expiration date).”

 

Futures-Contract

Image source: marketbusinessnews.com

 

As an example, let’s consider Ben and Marcus. Ben is a fisherman while Marcus is a fish vendor. They have entered into a contract wherein Ben has to sell Marcus 100 tunas at $1 per head for the next fishing season. Ben is trying to secure a future selling price, while Marcus on the other hand is trying to establish a fixed buying price. If the price of tuna increases to $2 the next day, then Marcus would have profited since the buying price is already fixed. Ben on the other hand would have incurred a loss since he can’t sell his products at the adjusted market price. These fluctuations are then calculated and monitored daily until an agreed upon date. If the next fishing season arrives and the price of the commodities hasn’t changed, then Ben would have lost $100 while Marcus would have made $100.

 

Futures-Contract2

Image source: entrepreneur.com

 

One economic importance of the futures market is price discovery. Because of its highly competitive nature, it becomes an important factor in determining the prices based on the present and future estimated supply and demand. It is also important in reducing risks when making purchases since the buying price can’t be changed even if the market price has increased (or decreased) significantly. Prices are fixed however the market moves.

 

To know more about futures contracts, trading, or the investment industry in general, consult with any of LOM Financial’s investment advisors.

REPOST: Hong Kong’s Bermuda Bent

Companies domiciled in the Cayman Islands and Bermuda make up nearly half the market capitalization of the Hang Seng index. Here’s a comprehensive report on Hong Kong’s offshore companies from Bloomberg:

As this week’s release of the Panama Papers has shown, most investors like to keep their links to offshore financial centers on the QT. Not so in Hong Kong.

Take a look, for instance, at the front page of the latest annual report from one constituent of the Hang Seng Index, a noodle maker that Chinese consumers know by the cuddly name of Master Kong:

B1

 

The name helps remind local investors nervous of Beijing that while Tingyi’s main offices are in Shanghai, its legal base is an island 90 minutes’ flight from Miami whose governor is appointed by the Queen of England.That attitude isn’t unique among the city’s businesses. About 45 percent of the market capitalization of the Hang Seng Index consists of companies whose registered offices are in the Cayman Islands or Bermuda — including its largest constituent by weighting, Tencent, and all the main firms in Li Ka-Shing’s Cheung Kong empire.

 

Bermuda Option

Companies domiciled in the Cayman Islands and Bermuda make up nearly half the market capitalization of the Hang Seng index.

Hong Kong Bermuda

As the past week’s revelations have demonstrated, Hong Kong’s companies are far from alone in carrying out this sort of global regulatory arbitrage.Wolseley, the world’s biggest supplier of plumbing parts, was founded in Australia, earns most of its revenue in the U.S., is listed on the London Stock Exchange, is domiciled in Jersey, and pays its taxes in Switzerland. Pfizer is said to be terminating its $160 billion merger with Allergan after U.S. officials proposed new rules that would make it harder for the group to benefit from low Irish tax rates.

 

Continue reading HERE.

Wallet in the cloud: The rise of the Bitcoin cryptocurrency

The United States has the dollar, Japan has the yen, while the Internet has Bitcoin. It is a computer program that acts as a unit of account or payment system that only exists in the digital world. Therefore, it is not minted from metal or printed on paper, which is always the case for real currencies. Its monetary value is completely virtual.

 

Bitcoin is the very first example of a growing trend known as cryptocurrency. During its infancy (c. 2008), there were a lot of negative speculations about it, including its authenticity as an acceptable monetary unit. However, nearly a decade since its creation, it has become a popular way to ‘buy’ goods or services. In fact, for the first time since its birth, the value of 1 Bitcoin has already eclipsed that of an ounce of gold.

 

Coin 1

Image source: coindesk.com

 

Bitcoins are basically ‘rewards,’ derived mainly by winning in a competition in which users—also known as miners—offer their computing power to verify business deals into the blockchain, which is a ledger or database that record all bitcoin transactions. As of February 2015, bitcoin is accepted as a payment method by over 100,000 merchants and vendors worldwide.

 

Early this month, the Internet currency was able to gain 3 percent, while the precious metal fell down by 1.3 percent. Looking at the progress data of both assets from a year ago, Bitcoin was able to nearly triple its value, while gold practically stayed at the same level. Both of them are alternative assets, though it is important to note that they aren’t usually traded in correlation.

 

Coin 2

Image source: bitcoin.org

 

Gold is practically the “gold” standard of all alternative assets. Investors usually use it as a hedge against potential losses from traditional assets such as stocks or real estate. That is why Bitcoin overtaking the valuable metal is notable since some predicted that the former would replace the latter as the preferred alternative asset. One can only speculate as to what could happen if ever the SEC approves of its listing.

 

Despite its remarkable rise in recent years, bitcoin is yet to truly prove itself as a viable and safe asset to be used in numerous transactions or even as a good addition to one’s investment portfolio. It cannot also be commoditized, unlike precious metals or crude oil. As such, bitcoin prices will tremendously suffer if the SEC does not approve a bitcoin ETF. Serious investors and investment managers will have to make extensive research before they can consider the virtual asset as something they could venture in.

Expatriates and their investment portfolio: Adding mutual funds into the mix

Investing in a variety of assets and securities, such as stocks and bonds, need not be complex and excruciating. For international investors, most especially, there are unlimited opportunities to grow their wealth base. The advent of Big Data and cloud technology has made investing in key markets around the world even more plausible and easier. Regardless of where you are in the world, you can always have the chance to tap into emerging financial powerhouses and safely diversify your portfolio with utmost security, confidence, and convenience.

mutual fund etf investing

Image source: thestar.com

Pooled funds, such as mutual funds, are among the easiest investment machines to own. In this type of investment, clients ‘pool’ their money together to form a large capital. This fund is then managed by an experienced, fully licensed professional manager who will do all the work (market monitoring, choosing which stocks to buy, etc.) on behalf of the investors in exchange of a small management fee. Mutual funds can be composed of pure stocks (equities), fixed income assets (bonds), or a combination of both (balanced).

Professional Management
Mutual funds do not require investors to have extensive market knowledge as they can delegate the specific investment decisions to a portfolio manager or a team of managers. Investors are provided with the services of an experienced professional who work with top-notch research firms, industry experts, and economic analysts to come up with the most prudent and sound financial decisions commensurate to the fund’s objectives.

Diversification
Mutual funds help mitigate risks by automatically distributing investors’ money across a wide range of assets, industries, and companies. In investing, diversification is one of the fundamental principles necessary to maximize returns and avoid significant losses. The adage “do not put all eggs in one basket,’ applies accurately on this type of fund. It also allows for a more cost-effective strategy than directly owning individual stocks or bonds.

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Image source: benzinga.com

Innovative infrastructure
Excellent online technology infrastructure, such as that of LOM Financial Management Services, is critical to making these transactions seamless and meaningful. IT systems and networking structure used by most mutual fund companies are state-of-the-art, secure, and easily navigable.

Convenience and Liquidity
Buying a mutual fund can be as easy as setting up a savings account from the bank. Cost-efficient and time-saving, it is an ideal investment option for those who lack the time to comprehensively study and monitor the market. Initial investments are relatively low while additional capital will entirely depend on how much the investor would want to deposit. They can also buy or sell their shares anytime they want. Best of all, investors are free to pursue their personal dreams and career aspirations while their money work hard for them.

For more information about mutual funds and how you can invest in them, follow this LINK.