Thu | Oct 18, 2018

Advisory Column: Identifying a good investment

Published:Sunday | March 22, 2015 | 12:00 AM

QUESTION: I read your

article in the paper and see that you offer investment advice and counsel. I am interested in finding the best institution to invest in locally, in the medium and short-term range. Are there any index funds locally that mimic the US market? Looking forward to a response.

- Brown

FINANCIAL ADVISER: The scope of my column goes beyond investments and, in fact, addresses personal financial planning issues, which include investments.

I am not quite certain about what you have in mind. It is possible that you could be thinking about equity investments, but such investments are best suited for the long term, perhaps the medium term, but not usually short term.

Although interest-bearing securities are debt instruments, buying the debt securities of a company - particularly the long-term ones - is really making an investment, but without any ownership attached.

Let me address your last issue first. There are no local funds which mimic any of the US market indices. The North American mutual funds marketed locally are actively managed funds, not the passively managed funds that index funds are.

If you are really interested in investing in an index fund that replicates a US market index and if you are in Jamaica, I suggest you investigate if any of the local investment dealers is able to make a connection with a US broker for you.

With respect to the first issue, if your interest is in equities, or ordinary stock, there are investment opportunities in both the main market and the junior market of the Jamaica Stock Exchange, which primarily provide opportunities to trade in Jamaican securities.

Dividends & returns

It is not the purpose of this column to recommend specific investments to readers. Such recommendations can be sourced from the dealer members of the Jamaica Stock Exchange, who are also described as stockbrokers.

But there are also investment dealers who are not members of the Jamaica Stock Exchange who can assist you with advice and management of your portfolio although they are not authorised to trade on the Jamaica Stock Exchange.

In looking at any of the companies listed on the stock exchange, you would need to examine its earnings potential because buying stock is really buying the future earnings

of the company. The following can serve as a guide. Past

performance, the position of the company in the market, its plans for the future, developments in the economy and how they are likely to affect its performance and the general attitude of the market to the stock.

If you are interested in a reasonable level of dividend income, you should also look at the dividend policy of the company as stated by the company itself or as reflected in past dividend payments in relation to profits.

You can get valuable information from the websites of most listed companies, the stock brokers and other companies which are licensed as investment dealers and offer services in portfolio management or accept orders for stock, which can then be executed by dealer members of the Jamaica Stock Exchange.

Although unit trusts do not facilitate direct investment in companies by investors, they do offer investors a good opportunity to invest in a relatively wide range of companies without having to contend with research and close management of the portfolio.

The five unit trusts operate close to 30 funds; there has been significant growth in the amount of the funds in the market recently. Consequently, the offerings have also increased quite significantly so investors are empowered to select funds that match their objectives far better than was the case not too long ago.

If you are interested in investing in corporate bonds, I am sorry to disappoint you because that section of the market has few listings and hardly any activity.

I would suggest that you establish your objective clearly before making a decision to invest. By doing so, you will be better able to determine for how long you want to invest and in what you want to invest.

When you know your reason for investing and have even some minimal knowledge from research, you will be in a better position to have a discussion with an investment professional and to make more meaningful decisions.

n Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.