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19Nov

Introduction to Investing

November 19, 2020 hejazfs Investments 157

Whether it’s taking a more active interest in your superannuation, starting to build an investment portfolio, or even trying your hands at playing the stock market, we can all benefit by understanding the language and key concepts of investing. Here’s a quick introduction to investing.

 

Asset classes

There is a huge range of potential investments out there, and these can be grouped together in asset classes that are based on shared characteristics. There are many asset classes, however we will focus on the 2 most mainstream and major ones shares (or equities) and property.

• Shares give investors part ownership (usually a very small part) in specific companies. The share market sets the value of each share and prices can fluctuate significantly, even from day to day. This price volatility means that, relative to other asset classes, shares are higher risk, particularly in the short term. However, investors expect to be rewarded for taking on this risk by the potential for shares to deliver higher long-term gains than the other asset classes. Shares may also provide regular income in the form of dividends. It’s common to split this asset class into Australian and international shares.

• Property also provides investors with full or partial ownership of growth assets. Income is received in the form of rent and property also has a strong history of providing capital growth. It is common to further subdivide this asset class into residential and commercial property, as these subclasses can have their own property cycles. As property can, at times, fall in value, it is considered a medium to high-risk asset class.

 

Why are asset classes important?

One of the golden rules of investment is that when seeking higher returns, investors must take on a greater degree of risk. As it relates to investment, risk can be thought of as volatility or uncertainty. Some quality investments may provide a high certainty of a particular return. They are low risk, and the returns they offer reflect this. However, for any given share, we don’t know what its price will be in a week, a month or a year. Prices may be volatile, the return is uncertain, so a share is a higher risk investment. However, that risk can be a positive thing – upside risk – which is the potential for the share to generate a higher than expected return.

Asset classes bundle together investments with similar risk and return profiles. By blending these asset classes together in different proportions – a process called asset allocation – investors can construct portfolios that provide levels of risk and return that suit specific needs. Typically, a retiree may want a portfolio that minimises their risk and provides more stable returns. A 30 year old with an investment time horizon of decades may be happy to take more risk, in the knowledge that, over the long term, growth assets (shares and property) have delivered the highest returns.

This blending of different asset classes results in diversification, which is a critical risk management tool. As different asset classes over and under perform at different times, mixing different asset classes lowers the volatility, and hence the risk, of a portfolio.

As far as returns are concerned, studies have shown that over 90% of a portfolio’s performance is determined by the asset allocation. It’s vastly more important than individual investment selection or the timing of purchases and sales.

 

Indexing

There are many different indices that track the performance of each asset class and its subclasses. The Australian All Ordinaries Index, for example, follows the fortunes of Australia’s 500 largest companies. The Australian Fixed Income Index Series tracks the performance of higher quality Australian bonds.

Given the importance of asset allocation and the difficulty of picking winning and losing shares or other assets, many investors are content to accept the performance delivered by each asset class. An easy way to achieve this is to invest in index funds. With a small number of these funds, it’s possible to deliver diversification both across and within asset classes, along with any desired asset allocation.

 

Help is at hand

Of course, there’s more to investing than can be conveyed in a short article, but that’s no reason to delay putting the various markets to work. Our financial advisers can help you understand your risk comfort level, and design an investment strategy that’s right for you.

 

At Hejaz Financial Services, our investment products are build and managed by expert teams with years of experience and deep, human understanding of markets. We are focused on taking your investment to a whole new level, setting the management of your wealth as our priority.

Learn more about our Premier Islamic Financial Services here.

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05Nov

The foundations of successful investing

November 5, 2020 hejazfs Investments 155

The foundations of successful investing

This article explains the important foundations of a strong investment portfolio based on 4 principles – quality, value, diversity and time.

Establishing an investment portfolio can be likened to building a home. The most destructive, yet unpredictable predator to the structure of a home is the weather. Even in these most technically advanced days, we are still unable to accurately predict the weather.

Like the weather, the future of the global economy can be the most unpredictable and destructive threat to your investment earnings. But with a carefully built portfolio based on sound foundations, you have a much better chance of weathering a financial storm.

 

Investment principles

The foundations of successful investing and a strong portfolio rely on four key ‘pillars’ or investment principles. Quality, Value, Diversity and Time.

We are probably all tired of the old line, “don’t put all your eggs into one basket” – meaning to diversify your portfolio – but that is only one pillar on which to rely. The other three are equally important. Forget about just one and you are setting yourself up for a collapse.

Let us briefly explain why all four pillars are crucial to your investing success.

 

Quality and Value

If we look at the first two pillars, quality and value, it’s obvious this means to look for assets that are expected to provide higher returns relative to their risks. Applying this to shares, quality companies should have a sound basis to their operations and growth; that is, their earnings are not driven by fads. This however, might mean they take time to deliver. Remember that investing in the share market is generally a long-term strategy.

Quality and value don’t always go hand in hand. Quality stocks may trade at such high prices that they offer low initial value or it could be that expectations for these companies are sometimes too high. The key here is quality… the expectation is that they will be around for a long time, not just a good time.

 

Diversify

This takes us back to diversity. Diversity acts like the scales in a portfolio, providing balance. True diversity in a portfolio gives the investor the opportunity to take advantage of “hot stocks” or asset classes, whilst balancing out the risk with quality stocks and asset classes. It can provide a buffer against mistakes in assessing value because nobody gets it right all of the time. A well-balanced portfolio should be designed to cope with occasional losses.

 

Time

And finally, the pillar of time applies to the previous three. It can give you the best chance of success. Every market will suffer periodic downturns, however over time the upturn will always triumph. The golden rule is don’t panic and get caught up in the fear and greed cycle. It’s about time in the market, not timing the market.

Past performance is not indicative of future results, nobody can successfully predict the future of the global economy. The best way to set yourself up for investing success is to make sure your investment portfolio is based on the four solid foundations and monitored consistently.

At Hejaz, our investment products are build around the core foundations and is managed by expert teams with years of experience and deep, human understanding of markets. We are focused on taking your investment to a whole new level, setting the management of your wealth as our priority.

Learn more about our Premier Islamic Financial Services here.

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15Oct

The benefits of investment diversification

October 15, 2020 hejazfs Investments 152

This article explains the benefits of investment diversification and simple ways to achieve investment diversification across asset classes.

When it comes to financial management, no single investment will continually outperform all other investments all of the time. To minimise potential losses and to smooth your investment returns over the longer term, you should spread your portfolio across various investments. But that can be easier said than done, so here are different ways to diversify.

Diversify across asset classes

Asset classes are the broad categories of investments and include equities, property and cash investments. Equities include both Australian and international shares. While property includes residential, retail and commercial properties.

Lower risk asset classes, like cash protects your capital during adverse market conditions. On the other hand, higher risk assets, such as Australian and international shares, can deliver good returns during the boom times. Holding a mix of asset classes may help to provide more stable returns over the medium to longer term as markets rise and fall.

Diversify within asset classes

This could mean spreading your share portfolio across different industry sectors because certain sectors may outperform others over a given period according to economic conditions.

Two good examples are mining and manufacturing. The Australian resources industry helped keep Australia’s economy a shining light against a gloomy international backdrop following the Global Financial Crisis. Manufacturing, on the other hand, struggles with high labour costs making Australia less competitive against low income countries such as China. The future is uncertain, and both of these industries are facing volatile conditions. So, a balance across industries is crucial to maintain stable returns over the medium to long term.

It can be simple

Even with a relatively modest amount to invest and very little time, you can achieve a balanced portfolio with the right mix of investments.

Managed funds offer easy access to a wide range of investments. By investing in a managed fund, professional fund managers select individual investments for you. In addition, most managed funds offer several different options to cater for varied levels of investment risk.

Other options include purchasing shares in Listed Investment Companies (LICs) and Exchange Traded Funds (ETFs) on the stock exchange. Depending on its charter, a LIC holds shares in a wide range of companies. While ETFs invest across all stocks making up a particular index, such as the S&P/ASX 200. Buying shares in an ETF or LIC gives you exposure to all the stocks held by the fund.

 

There are many benefits of investment diversification. At Hejaz Financial Services, our Halal Managed Funds are fully diversified, managed professionally and Sharia compliant. Our fund managers have a breath of experience and they are carefully and consistently monitoring your investments. We are focused on taking your return on investment to a whole new level, learn more here.

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01Oct

Choosing your investment strategy

October 1, 2020 hejazfs Investments 155

With the wide choice of investment options available today, choosing your investment strategy becomes a difficult task. You can choose from single sector funds like Australian share and international share funds, or diversified or multi-sector funds that include a mix of sectors like shares, cash and property.

Here are some factors to consider before choosing your investment strategy.

 

Investment types and risk

All investments carry some level of risk. The type and degree of risk will vary depending on the investments you choose. The trade-off for higher risk is usually a higher potential return.

Risk is typically measured in terms of the likelihood of achieving a negative return in any one year – the higher the risk level of an asset class the higher the likelihood of achieving a negative return.

Higher risk asset classes like shares are long-term investments, which means the longer you invest the less likelihood of your investment value falling. Not taking sufficient risk can be a risk in itself. For example, cash investments are less likely to grow over time and may not meet your long-term objectives.

 

Diversification

Spreading your money across a range of investments is one of the best ways to reduce your exposure to market risk. This way you are not relying on the returns of a single investment. Investment markets move up and down at different times. With a diversified portfolio of investments, returns from better performing investments can help offset those that underperform.

Holding a broadly diversified portfolio can also improve your performance potential and increase your chances of achieving market growth.

 

Getting your asset allocation right

Research confirms that how you allocate your assets to each asset class is more important to long-term performance than the individual stocks you choose.

Some investors prefer to leave the asset allocation decision up to a fund manager and invest in a diversified fund so they don’t have to worry about monitoring and rebalancing their portfolios.

Investors who want more control over their investments may decide to make up their own asset allocation by selecting individual asset class funds. If you decide to use this approach, you will need to be disciplined and monitor your investments on an ongoing basis and rebalance your investments in line with your asset allocation targets. Alternatively, you could ask your financial adviser to do this for you.

 

Your investment profile

Before choosing your asset allocation you will need to consider factors such as your:

  • Short, medium and longer-term investment objectives.
  • Investment timeframe.
  • Attitude to risk and return.
  • Current circumstances, limitations and future prospects.

The above factors will help you, or your adviser, identify your investment profile so you can determine the most suitable asset allocation for your needs.

Risk/return profiling is a tool used by professional and novice investors alike when determining investment profiles. It can be a detailed and individual process, so it is best completed under the guidance of a professional financial adviser.

 

Sometimes life doesn’t go to plan. So, it’s important to review your investment strategy if there are any major changes in your circumstances. If you need help, our professional financial advisers can determine the best investment strategy for your investment timeframe, objectives and personal circumstances.

Learn more about our Islamic investment products here.

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20Aug

Preparing for retirement in uncertain times

August 20, 2020 hejazfs Investments, Lifestyle 133

We know that preparing for retirement can be difficult especially during uncertain times. This article will suggest ways you can preserve your wealth so that your retirement plan is on track. As most long-term investors know, investment markets have their ups and downs. The downs are usually associated with periods of uncertainty, perhaps due to political or economic factors, or even natural disasters. Uncertainty leads to volatility – more extreme movements in asset prices – which can have a big impact on portfolio values. This can be of particular concern if you are close to retirement and preparing for your last payday. So, what can you do about it?  

 

If you are building wealth in preparation for retirement in wobbly times, there are some options: 

  1. Save more. The 9.5% Super Guarantee will not be enough. Savings of at least 15% of salary over your working life are required to produce a sufficiently large retirement investment.  
  2. Spend less now and in retirement. Review your budget and review your plans about how you will live in retirement. 
  3. Work longer. Put off retirement until later; maybe consider working part-time in the first few years of “retirement”. 
  4. Seek higher investment returns. 
  5. Implement a gearing strategy to accelerate returns. 

 

This last solution will involve taking on more risk. Investors have always accepted that the higher the return, the higher the risk. It is often easier to see the good investment opportunities after the event, but the challenge is to identify where consistent higher returns can be found.  

 

Don’t abandon shares 

Over the long term, shares have produced higher returns with greater volatility. The returns shares provide is called the “equity risk premium” – the reward for taking on the extra risk. When investment volatility is high, shares tend to be the hardest hit. But while it is tempting to sell shares in a falling market, this robs investors of the opportunity to ride the upswing when markets recover. 

 

Allocate more to riskier assets 

Fund managers have traditionally held a significant proportion of investments in blue chip company shares. Whilst they tend to pay consistent dividends, there may be other opportunities for faster growth. These include smaller companies (or small caps), unlisted shares (private companies) and overseas shares in less developed countries (emerging markets). 

Apart from shares, higher yielding debt instruments offer the potential for even higher returns but at higher risk. 

The key to investing in these areas is good research – identifying sound opportunities and eliminating those with unacceptable levels of risk. Of course, the supply of “good quality, relatively safe” investment opportunities may appear to be limited when things are uncertain. Some fund managers offer products specialising in a wide variety of assets.  

 

Active asset management 

Good investment management requires talented people and sophisticated systems and strategies. Organisations with these attributes have a better chance of identifying under- and over-priced securities and markets. By moving money between countries, currencies, sectors, and asset classes, these managers aim to produce higher returns. Funds managed according to an “absolute return” philosophy is an example of where managers aim to produce above average returns in rising and falling markets. 

 

Implement a gearing strategy 

Borrowing (or gearing) gives you a larger sum of money to invest. This magnifies any growth you achieve on your investments especially over the long term. Careful thought should be given regarding the method of gearing as some strategies may be more suitable to your particular circumstances than others. You should always bear in mind that gearing may not only increase your gains, it can also magnify any losses.  

 

Preparing for retirement in uncertain times can be difficult. Before you make any rash decisions, talk to your financial adviser first to develop a plan specifically to suit your needs.

 

Learn more about our range of Islamic financial products here.

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02Jul

Waiting in cash until share markets fall

July 2, 2020 hejazfs Investments 132

This article uses a case study to demonstrate the strategy of holding in cash and waiting for share markets to fall (market opportunities/ volatility) before investing. It demonstrates the key benefits as well as consequences and urges clients to seek professional advice from a qualified financial planner.  

As any long-term share market investor knows, markets can go up and they can go down. While most people view a falling market as a bad thing, some investors see it as a buying opportunity. After all, it’s better to pay, say, $60 for a share after a market dip than $100 for the same share at the market peak. 

Of course, to be able to exploit these buying opportunities, the cash needs to be available. That means hoarding some extra cash while markets are happy in anticipation of a rainy day. It also means having a strategy around when to invest, how much to invest, how long to hold and what to invest in. There isn’t a single, off the shelf solution to this, but 58-year-old Adam provides an example of what the rainy day investor needs to think about.  

 

How much? 

Adam is a seasoned investor with a sizable self-managed super fund. He has weathered several market slumps over the years, and when markets are trading normally, with low volatility, he is happy to build up a cash reserve of up to 20% of his fund’s value to be used when the share market goes ‘on sale’. The cash comes from dividends and distributions, contributions and realised capital gains. 

 

When to invest? 

With no hard and fast rules, Adam decides that if the market falls by 10% he will invest 25% of his reserved cash. For each further fall of 10% he will invest a further 25%, so after a market fall of 40%, all his cash stash will be invested. This could occur in a short time period or evolve over many months of ups and downs. In some market corrections he may not use all of this cash. 

 

What to invest in? 

Adam has some favourite shares and if they fall significantly in value he will top up his holdings. However, he knows this involves more risk than buying the market, so most of his purchases will be of index funds.   

 

How long to hold? 

In volatile markets price movements can be sudden, dramatic, and in either direction. Adam’s strategy is to sell any shares that produce a gain of 20% or more during the recovery phase. He also uses stop-loss orders to provide some protection from further sharp falls. Adam also limits himself to buying quality assets, and is prepared to hold them long term if the recovery is a slow one. 

Adam knows his strategy isn’t perfect. If share prices don’t fall, he is left holding larger amounts of low-yielding cash than would normally be the case. If they fall a long way, he’ll miss out on buying at the bottom of the market. But Adam gains some peace of mind that if (or when) market corrections do occur, his strategy should provide some protection to his super portfolio and improve his long-term position. 

 

Seek advice 

This is just one example of a rainy day cash strategy. Everyone’s circumstances differ, and it is important to seek appropriate advice specific to your situation. 

 

At Hejaz Financial Services, we have an in-house investment team who manage your funds, setting the management of your wealth as our priority. Learn more about our Halal Managed Funds here.

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07Jan

How to handle market declines

January 7, 2020 hejazfs Investments 119

6 ways to fight fear with facts

You wouldn’t be human if you didn’t fear loss.

Nobel Prize-winning psychologist Daniel Kahneman demonstrated this with his loss aversion theory, showing that people feel the pain of losing money more than they enjoy gains. Thus, investors’ natural instinct is to flee the market when it starts to plummet, just as greed prompts people to jump back in when stocks are skyrocketing. Both can have negative impacts.

But smart investing can overcome the power of emotion by focusing on relevant research, solid data and proven strategies. Here are six principles that can help fight the urge to make emotional decisions in times of market turmoil.

 

1. Market declines are part of investing.

Stocks have risen steadily for a decade, but history tells us that stock market declines are an inevitable part of investing. The good news is that corrections (defined as a 10% or more decline), bear markets (an extended 20% or more decline) and other challenging patches haven’t lasted forever.

The Standard & Poor’s 500 Composite Index has typically dipped at least 10% about once a year, and 20% or more about every four years, according to data from 1949 to 2018. While past results are not predictive of future results, each downturn has been followed by a recovery and a new market high.

 

2. Time in the market matters, not market timing.

No one can accurately predict short-term market moves, and investors who sit on the sidelines risk losing out on periods of meaningful price appreciation that follow downturns.

Every S&P 500 decline of 15% or more, from 1929 through 2018, has been followed by a recovery. The average return in the first year after each of these declines was nearly 55%.

Even missing out on just a few trading days can take a toll. A hypothetical investment of $1,000 in the S&P 500 made in 2009 would have grown to more than $2,700 by the end of 2018. But if an investor missed just the 10 best trading days during that period, he or she would have ended up with 38% less.

 

3. Emotional investing can be hazardous.

Kahneman won his Nobel Prize in 2002 for his work in behavioral economics, a field that investigates how individuals make financial decisions. A key finding of behavioral economists is that people often act irrationally when making such choices.

Emotional reactions to market events are perfectly normal. Investors should expect to feel nervous when markets decline, but it’s the actions taken during such periods that can mean the difference between investment success and shortfall.

One way to encourage rational investment decision-making is to understand the fundamentals of behavioral economics. Recognizing behaviors like anchoring, confirmation bias and availability bias may help investors identify potential mistakes before they make them.

 

4. Make a plan and stick to it.

Creating and adhering to a thoughtfully constructed investment plan is another way to avoid making short-sighted investment decisions — particularly when markets move lower. The plan should take into account a number of factors, including risk tolerance and short- and long-term goals.

One way to avoid futile attempts to time the market is with dollar cost averaging, where a fixed amount of money is invested at regular intervals, regardless of market ups and downs. This approach creates a strategy in which more shares are purchased at lower prices and fewer shares are purchased at higher prices. Over time investors pay less, on average, per share. Regular investing does not ensure a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.

Retirement plans, to which investors make automatic contributions with every paycheck, are a prime example of dollar cost averaging.

 

5. Diversification matters.

A diversified portfolio doesn’t guarantee profits or provide assurances that investments won’t decrease in value, but it does lower risk. By spreading investments across a variety of asset classes, investors can buffer the effects of volatility on their portfolios. Overall returns won’t reach the highest highs of any single investment — but they won’t hit the lowest lows either.

For investors who want to avoid some of the stress of downturns, diversification can help lower volatility.

 

6. The market tends to reward long-term investors.

Is it reasonable to expect 30% returns every year? Of course not. And if stocks have moved lower in recent weeks, you shouldn’t expect that to be the start of a long-term trend, either. Behavioral economics tells us recent events carry an outsized influence on our perceptions and decisions.

It’s always important to maintain a long-term perspective, but especially when markets are declining. Although stocks rise and fall in the short term, they’ve tended to reward investors over longer periods of time. Even including downturns, the S&P 500’s average annual return over all 10-year periods from 1937 to 2018 was 10.43%.

It’s natural for emotions to bubble up during periods of volatility. Those investors who can tune out the news and focus on their long-term goals are better positioned to plot out a wise investment strategy.

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29Nov

Islamic fund eyes Coast’s Halal tourism future

November 29, 2019 Ali Ozyon Investments, Lifestyle, Media 129

An Islamic fund manager will invest $30 million on the Gold Coast on tourism assets that reflect Muslim cultural values.

Millions of dollars will be invested by an Islamic fund on the Gold Coast to create resorts and accommodation that cater for Muslim tourists.

AN Islamic financial services company will invest millions in the booming Halal tourism sector in Queensland over the next three years with the focus on the Gold Coast. The Melbourne-based Hejaz Financial Services managed diversified Global Ethical Fund aims to spend an initial $30 million in Queensland.

The fund will focus on either new tourism developments or on capital works on existing accommodation sites that will conform to Islamic values in a family cultural context.

This would mean resorts would have access to prayer rooms, offer activities that are exempt from gambling and drinking and provide a range of Halal-friendly restaurants and dining options.

Overseas there are Muslim focused resorts which also feature calls to prayers, separate men and women’s swimming pools and other segregated activities. Queensland tourism surges ahead of biggest rivals

Hejaz Financial Services chief operating officer Muzzammil Dhedhy said Queensland and especially the Gold Coast was appealing to Muslim holiday makers. “We have no property in Queensland as yet but we intend to invest $30 million into Australian Halal tourism infrastructure over the next three years,” he said.” We would look at the Gold Coast because if its weather and geography and we would be focusing on properties of 30 to 40 rooms give or take.

“Our fund is Australia’s strongest performing Islamic investment fund and is growing 100 per cent year-on-year so there will most definitely be more opportunities for greater investment into Halal tourism infrastructure.”

Latest research found the current commercial value of the global Halal tourism market was about $300 billion buoyed by a growing Muslim middle class mostly from the middle-east and south-east Asian countries.

According to Hejaz Australia currently only has as small stake in the growing market.

“Lets say a couple from Dubai want to go on a honeymoon, Australia probably doesn’t come up on the radar,” Mr
Dhedhy said.

“But Halal tourism is growing and we see an opportunity because it satisfies a requirement through our fund but also it provides an outstanding opportunity to participate in the Australian economy as well.”

Report

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23Oct

Low-debt companies driving returns for ESG investors

October 23, 2019 hejazfs Investments, Media 137

Avoiding investment in highly leveraged ASX-listed companies can lead to stronger returns, according to a study by environmental, social and governance (ESG) and Islamic fund manager Hejaz Financial Services.

Their recent analysis showed that over one year, the total return (weighted average) for companies with a debt/market capitalisation ratio less than 30% was 14.92%, which was three times that of companies with ratios of 30% or higher.

Over a period of three years, companies with relatively low debt/market cap ratios returned 25.35% (weighted average), compared to 8.89% for the rest of the market.

Over five years, low-debt companies more than doubled the investment return (on weighted average) of more highly geared stocks.

The sectors most likely to include highly-leveraged companies were financials, real estate and utilities, with IT and healthcare companies carrying debt/market cap ratios of less than 30%.

Hakan Ozyon, Hejaz’s senior portfolio manager and chief executive, said that approach helped deliver consistent returns for clients and help outperform ‘mainstream’ ESG funds.

“By taking a values-based approach to investing which, for Hejaz, involves excluding highly leveraged companies, we’ve delivered a gross return of 9.37% per annum since inception,” Ozyon said.

“With interest rates reaching record lows and debt being cheaper than ever, we’ve seen a sharp rise in management’s comfort with taking on greater levels of debt.”

Report

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