How did your investments fare this year? 2005 is not quite
over yet but barring any end-of-year surprises the following
is an indication of how various asset classes have performed
over the year.
Stock markets
Most investors will have made modest gains this year and certainly
outperformed cash. The best markets have been the emerging
ones with India outstanding. Japan has also had a very good
year and seems to be emerging strongly from many years in
the doldrums. European markets have performed better than
US markets but this has been offset by a currency fall of
around 10%. This highlights the importance of establishing
a base currency since choice of currency can often have a
bigger impact than gains or losses in the markets themselves.
Bond markets
It has not been a good year for bond markets as capital values
of bonds have fallen as interest rates have risen. Fears of
inflation also have a negative impact on this asset class.
Holders of Indonesian bonds were hit quite hard when interest
rates rose steeply in reaction to rising oil prices.
Hedge funds
The relatively conservative hedge funds I deal with have made
small gains during the year, generally between 3% and 6% in
USD. Not a lot admittedly, but this asset class tends to perform
more strongly during lean years in the stock markets. As with
bonds, it is important to have a range of non-correlated assets
in a balanced portfolio to avoid major swings in any given
year.
Commercial property funds
Funds such as Brandeaux and Glanmore that invest in a range
of commercial properties such as office blocks, shopping malls,
student accommodation etc. have enjoyed another steady year
with returns of around 7% to 10% depending on the currency
of the fund. The investments are in the UK but can be hedged
in other currencies.
Residential property
After several boom years owners of property in the UK, continental
Europe and Australia have generally seen their values start
to fall in 2005. Bali on the other hand has seen a continuing
boom although there appears to have been a definite slowdown
since the second bombing. Certainly, anyone who had the foresight
to buy land five years or so ago and sold this year would
have seen a handsome return. Property developers must also
be in the winners’ category when you look at the asking
prices for new villas.
Commodities – gold and oil
These have been the big winners this year. I highlighted both
in a previous article (Investing in Commodities) way back
in April 2004. Anyone who invested in the funds I quoted then
would have made a lot of money by now! Gold has hit its highest
level for 25 years (but is still way below its level in the
1970’s!) and oil may rise again to $70 a barrel should
the northern hemisphere have a severe winter. Commodities
are nevertheless toward the higher end of the risk spectrum
so I would not advise placing more than 10% of a portfolio
in this asset class. But if the timing is right, the gains
in this category alone will greatly enhance the overall returns
on an otherwise average performing portfolio and put it into
the winners’ category!
Savings and retirement plans
Investors who hold a fairly aggressive range of funds (eg.
Asia, emerging markets, etc.) will have seen a significant
rise in their valuations this year, especially if they were
investing in these funds when prices were low a couple of
years back. This shows the benefit of cost averaging. Care
must be taken however not to be too exposed to the same funds
when plans get closer to maturity.
Private business
Many expats in Bali tend to ignore the financial markets and
place all their money and energy into their businesses. This
is fine when the business is successful but it is also highly
risky and can leave a person high and dry when things go wrong.
Having said that, I have found that those in manufacturing
and export have had a good year, no doubt buoyed by healthy
demand from strong global economies. It also promised to be
a good year for those in tourist-related businesses –
until the second bombing. So among the many entrepreneurs
in Bali there will be both winners and losers this year.
However you fared personally in 2005, it is now almost behind
us. It is now time to start planning and setting goals for
2006. May it be a happy and prosperous year for all of you!
Colin Bloodworth is a senior adviser with Financial Partners
International. The opinions expressed are his own. If you
have any questions regarding personal finance you may contact
him at 021 520 8099 or colin.bloodworth@financial-partners.biz
