Vintage Wine Market Update – November, 2021

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The Liv-ex 100 index, which is the leading benchmark for the vintage wine market, rose by 2.2% in October and 19% to the end of October. It is now back to its pre-2011 level. Overall every wine region is showing solid price increases with Burgundy, Champagne, Italy and Rhône performing the best.
Burgundy continues its steady ascent towards new highs as recent low yielding vintages coupled with continuous high demand continue to push prices higher.

The top white Burgundy wines are stepping into the limelight. According to Liv-ex, the amount of white Burgundies traded has increased by more than a 1,000% over the past ten years. Domaine Leflaive, Coche Dury, D’Auvenay are just a few names which make Chardonnay lovers dream. Traditionally, the UK and US markets have driven demand but the Asian market, particularly Hong Kong, is showing some interest in this golden libation.

Among Bordeaux first growths, Chateau Lafite Rothschild is again very popular, commanding seven of the top ten searches on Liv-ex so far this year, as well as being the most expensive.  Paradoxically, when it comes to highest average scores, Chateau Haut Brion takes top rank . Again according to Liv-ex, the average price for a case of Lafite is £7,000 compared to £5,000 for the other four estates. The Lafite brand is appealing to many more consumers than ever.

Growing diversity best describes the fine wine market in 2021. More wines from a larger pool of regions are trading than ever before, giving investors and wine lovers even more opportunities and choices.

Auction World

Following in the footsteps of a world record breaking September auction in Hong Kong, Burgundy wines were the stars of Acker’s latest auction on November 8th. Domaine de la Romanee Conti (DRC) wines led the pack, with one lot of 3 bottles of Romanee Conti 1999 selling for US$ 96,387, followed closely by wines from Domaine Leroy and by the great master of white Burgundy, Domaine Leflaive.  According to John Kapon, Chairman of Acker Wines, the appetite for outstanding wines continue to grow not only for Burgundy wines but for a large range of collectible bottles.

The November auction in Hong Kong realised sales of US$5.8 million.

Sotheby’s two day sale in Hong Kong last month saw 100% of the lots sold for a total amount of US$ 12.6 million. An average of 75% of the wines were sold above their high estimates as 2021 is set to be a record breaking year for Sotheby’s in Asia. Christie’s will hold its annual Fall auction in Hong Kong starting on November 25th with an impressive selection of great vintages from Domaine Leroy and Armand Rousseau, Chateau Petrus and Romanee Conti.

France harvest 2021: A Winegrower Vintage

2021 will be remembered not only as one of the smallest crops since 1977 but also as an extremely complicated vintage to produce. Every wine region in France was affected. A combination of spring frost, mildew, constant rain in June and a cool month of July led to low yields. The growing season was unusually time consuming as wine growers had to keep going back to the vineyard to check and treat the vines. This year will probably also be remembered as a costly vintage to produce due to the amount of treatments necessary to keep a very small crop healthy.

2021 is a technical vintage which will require lots of finesse to attain high quality. The saving grace of the vintage was the late summer ripening (mostly September) which allowed the more fortunate estates to produce good to excellent quality wines. In Bordeaux, producers are praising the vintage as offering great balance between acidity and alcohol, with excellent merlot grapes and well-ripened cabernet.  It is certain that 2021 will produce less alcoholic wines in contrast to the past three years and many wine professionals are looking forward to tasting these more classic Burgundies and Bordeaux.

Focus on Spain. The renaissance of a great wine-growing country

For many, Spanish wines are synonymous with affordable, mass produced Rioja reds.  Although, this might still be the case, the wine scene has changed dramatically over the past two decades. Quality driven winemakers in Rioja and in Ribera del Duero, such as Peter Sisseck, Carlos Lopez de Lacalle, Benjamin Romeo and Telmo Rodrigues, have created new wines going back to more terroir-focused production making better use of local, indigenous grapes. This renaissance of the traditional Rioja and Ribera del Duero is paving  the way for other wine regions to emerge.  Priorat, Toro and Bierzo are now producing much sought after wines of very high quality.   Clos Erasmus, Clos Mogador,  Descendientes and Bodegas Numanthia (LVMH group) are just a few of the top producer names in these newly discovered regions.  Many of Spain’s new wines are made in small quantities, fetching high prices and are slowly becoming investment grade.   More than ever, Spain offers great quality wines at affordable prices.


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The Family Office Comes to Asia

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The American system of family offices has begun to take off in Asia.

The early 1900s saw the likes of John D Rockefeller and Henry Phipps Jr. make fortunes and try to preserve those fortunes by setting up investment trusts for their children. These fortunes, and many others, were managed by what has become today a growth industry in the US – the family office.

What was once done exclusively for one family was soon offered to other wealthy families. We can see examples of this in the development of the Bessemer Trust that originally managed the investments of the Phipps family and the Starwood group that looks after the Sears Roebuck fortune. Both now serve as family offices for many families.

The development of the Asian family office is in its early stages and has important implications for lawyers and accountants in Hong Kong and elsewhere in the region.

What is a Family Office?

The family office generally groups lawyers, accountants and investment professionals in one office that works for the multi-generation family. Besides undertaking tax preparation and planning, estate and trust administration and overall investment management (which includes traditional investment portfolios, private equity and real estate), family offices sometimes pay the bills, make travel arrangements, stock up the wine cellar and arrange for school admissions.

Increasingly, young Asians are being educated and are working and living outside the Asian region. Fewer of them decide to join the family businesses started by their fathers and grandfathers. As such, the issues of succession and estate planning are beginning to become concerns for wealthy families.

Likewise, there is greater need to manage the large pools of capital raised from selling businesses and real estate. Professionals, who are able, experienced and exclusively focused on the task, can best undertake the job of managing these capital pools.

The American family office industry is quite mature. There are now groups that advise families on establishing a family office, selecting a family office and executive search services that find professionals to work in family offices.

Why Use a Family Office?

Wealthy Asian families have increasing contacts beyond their national borders which means there are a greater number of matters that potentially affect multi-generation family wealth management.

For example, let’s look at the simple case of a family member moving to North America. First, when succession takes place from one generation to another, the residence of the beneficiary can result in large estate duties on the family fortune. Second, the tax paid on investment income, a domain best left to tax experts, becomes a pressing issue. Third, the assets, sometimes heavily concentrated in one industry and geographic area, should be diversified to meet the demands of family members with residences abroad and / or family members living abroad.

Beyond this, families often make direct investments in foreign countries in real estate or operating businesses without properly monitoring the investments. To properly address any of the above is a full-time job for someone, even when using outside professionals such as lawyers and accountants.

Sometimes a family member from the second or third generation is willing to take on the tasks. Even they, however, are likely to require administrative assistance.

The Asian Family Office

We believe that the development of Asian family offices will continue to see steady growth over the next 10 years and will develop its own characteristics. Some families will embark on setting up their own. Others will use the services of open family offices to limit costs and test the waters, and getting the services they need, before deciding whether to go on and establish their own.

Accounting, legal and investment advisory firms often have special relationships with their clients and sometimes provide advice on matters related to family wealth management.

The co-operation between these firms and other specialized professionals is in the best interest of the client and the professional firms themselves. The Asian family office will likely start as a central office which will co-ordinate the work among accountants, lawyers, investment advisors and other professionals.


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Who is Minding the Store?

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Understanding how your investments are managed is the safest measure against financial loss. During every investment cycle, frauds and failures are discovered at investment managers and broker / dealers.

In view of this, the best policy for preventing investment loss, either through fraud or financial collapse, is understanding how your investment accounts operate. Investors should be as concerned about asset custody as about investment performance.

Who Actually Holds Your Assets? If you don’t know, you should! Your financial adviser should explain in detail how your assets are safeguarded. As a rough guide, there are three distinct functions in investment process: investment management, brokerage and custodial services.

Understanding these functions, which are all independent from each other, is useful in assessing their importance to the overall investment performance and to the security of investment assets.

It’s really quite simple. A fund manager carries out your investment requirements by making decision to acquire and sell securities. The buy and sell transactions are executed by a registered dealer or broker. The broker / dealer then settles the transaction with the custodian – a bank or financial institution that keeps custody of securities (stocks, bonds, treasury bills, funds, cash, etc) – where you, the investor, have a custodian account.

Brokerage houses and brokers / dealers enjoy broader recognition among individual investors than do custodians. However, the extent to which investors understand this highly specialized business is unclear. Financial strength is the most vital factor to consider when selecting a custodian or brokerage house, as some are well-managed and financially strong, while other are less so.

How Does the Transaction Process Work?

There are many different types of financial adviser, each determining the number of parties that will be involved in a client’s investment process.

  1. The fund manager manages your monies according to your investment objectives; then sets up an account at a custodian bank and transfers funds to the custodian account.
  2. The fund manager purchases shares of XYZ Corp for your account by giving an order to a broker or dealer to buy shares of XYZ. The manager instructs the broker or dealer to deliver the shares against payment to the custodian account and at the same time, instructs the custodian to pay against receipt of the XYZ Corp shares.  With selling transactions, the reverse applies: dividend and interest payments are deposited in the custodian account.
  3. You wish to withdraw money from the investment portfolio and inform the fund manager, who then has to ensure that there is enough cash in the custodian account.  As the sole authority over the custodian account, you inform the custodian bank as to where you wish to have the funds sent.

Choosing Your Service Provider

How does the transaction process apply to investment accounts at banks, brokerage houses or in mutual funds?

A bank usually provides both investment management and custodial services. If the bank operates a brokerage firm, it is likely that transactions are posted through that firm. When a brokerage firm is retained as an investment adviser, the firm normally provides custodian services and executes most of the transactions, provided that the firm is a member of the stock exchange where the transactions are made. If the bank uses outside service providers, such as a mutual fund or hedger fund, additional institutions will act as custodians and advisers. The structure of a mutual fund incorporates both an investment manager and a custodian.

Clear, legible and comprehensive account statements, which vary depending on the adviser, are also an important means to effectively monitor your investments. You should make sure that these statements are audited by a reputable third party, and it is advisable to see a sample statement when carrying out due diligence on potential investment advisers.

By understanding the three parts of the investment process, the role each service provider plays in safeguarding your investments will become much clearer. Ensure that you are getting the best protection at each stage of the investment process – every service provider should be examined individually, as well as all together as a team.

The investment business, as with all businesses, offers few free lunches. Fees and other expenses will affect the returns earned by the investment portfolio. It is just as important to understand the functional role, as well as their related charges, in the investment process, in order to determine whether good value is delivered.

The current economic situation may be a difficult period for many investors given the market volatility, so don’t make things worse by leaving yourself open to loss of money through fraud or service provider financial weakness.

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Protecting Your Investments

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There is much you can do to minimize your investment risk and maximise your returns.

Leading international financial institutions offer conflicting opinions on the direction of the world’s major economies and interest rates.  How can you better protect your own investments?  How can you best position yourself in the current capital markets?

Remember that a large investment manager does not guarantee good investment performance.  It is a good idea to do some of your own homework and monitor your investment performance.

If during regular meetings with your investment adviser you feel that your investment objectives are no longer being met and no attempt has been made to re-align your investments with your objectives, you should seek another adviser.

If you believe that either negligence or fraud has occurred, you should go to the Securities and Futures Commission immediately.


Clear, legible and comprehensive statements are an important means to effectively monitor your investments.   You should keep a good record of your statements.   With the aid of clear statements, you will be in a better position to follow your adviser’s explanations as to how your portfolio is reacting to prevailing market conditions and how your investments are expected to perform in the coming 12 to 18 months.

Statements of investment accounts will vary from one type of adviser to another.  Mutual fund statements will include all the assets of the fund.  While your investment adviser should be able to answer any questions you may have about the performance of the fund, it is unlikely that he or she will be in frequent contact with the manager of the fund.

Mutual fund statements will be different from those of a bank, a brokerage house, or a discretionary manager.  It is also likely that statements from advisers within the same category will vary.  For example, some international stock brokers and private banks may have accounts for holdings in different foreign currencies, whereas others may just convert everything back to one base currency. Furthermore, market prices of some of the securities may be approximate or not current.

You should ask to see a sample statement when you are doing your initial due diligence.  This should include a portfolio statement as well as a transactions statement.  You should check to see whether these statements are audited by a reputable third party.

Good Positioning

International financial markets are constantly changing.  Many investors try to time the markets in order to optimize gains.   It is highly unlikely that anyone can successfully time the market over an extended period.  How does one position an investment portfolio to get the best returns according to one’s investment objectives?

If you were a collector of French wines, you would stock your cellar with wines from Bordeaux, Burgundy and perhaps the Rhone Valley.   You would allocate a certain percentage of cases to each region, much like asset classes.   You would have a diversified collection, with a number of different chateaux and vintages from each region.

The major investment asset classes are cash, bonds (fixed-income) and equities. Real estate, another important asset class, will be addressed in a separate article. After you have determined your asset allocation, you should then choose any  number of different securities in each asset class.  Each asset class has different risk and reward characteristics.  Individual securities should be selected according to individual investment acumen and method.

Asset Allocation

Often market increases occur over a very brief period, sometimes a matter of weeks.  If you wait until the market has made a large advance and then make investments, you run the risk of having missed out on most of the returns.

How do you determine what is the best asset allocation to achieve your investment objectives?

Different financial advisers have different approaches.  Your local stock broker cannot advise you on asset allocation because he or she works in one asset class – equity – and in only one market, the Hong Kong Stock Exchange.

Asset allocation advice is generally included in the services provided by discretionary investment managers and private bankers.

In addition, there are advisers who will only provide asset allocation advice, leaving you to find the appropriate manager.

What is Diversification?

Diversification is often explained using the adage “don’t put all your eggs in one basket”.  Diversification helps decrease one’s market risk.  There are many methods of diversification.  You can diversify between asset classes and within asset classes.

However, you must choose the method which best suits your objectives.  For example, if you already have numerous assets such as business, real estate and regional stocks, in Hong Kong and elsewhere in Asia, you may wish to diversify into other international markets.

In diversifying among different security positions, you should try to find a balance which offers the best protection while achieving the best return.  This is a matter of style and method.

For any equity portfolio, there should be no fewer than 30 positions in order to benefit from diversification and if the portfolio is smaller than $1,000,000 then probably no more than 40 to 50 positions.  For a larger portfolio, for example US$10 million, then the number of positions could increase to even above 60.

Note that the number of positions does not increase in proportion to the total dollar value.

Managing as many as 60 positions becomes a job for a professional.  If you wish to manage a portfolio of between US$300,000 and US$1 million without the help of a professional adviser, you will need to possess the professional skills necessary to undertake such a task.

Once you have determined your asset allocation you can also choose to use either discretionary portfolio managers or mutual funds.  Both will provide you with the necessary level of diversification.

However, you should be careful not to over-diversify both because you will find that it will take a great deal of time to monitor your portfolio properly and over-diversification can actually lead to poor investment returns.

As an investor, protecting yourself against loss should always be a primary consideration.  A clear investment account statement is fundamental to protecting your investments and is a tool of empowerment, facilitating your ability to monitor your investments and your investment manager’s performance.

Asset allocation and portfolio diversification provide protection against rapidly changing market conditions by spreading your risk and allowing you to benefit from different market cycles.

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Investing Without Borders

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With the recent turmoil in global equity market, we look at the essential skill for achieving strong investment returns.

The dramatic fluctuation in global equity markets of the past 18 months have caused many people to reconsider their investment strategies. We hope that one of the outcomes will be that investors will be less complacent.

To be a good international investment manager one should be a generalist, not a specialist.  Contrary to what investment professionals may say, we believe that strong investment returns are founded on a few simple concepts.  In the mid-1990’s, Daniel Brosseau, a co-founder of Letko, Brosseau and Associates, outlined these concepts to industry peers in a presentation title. “Investing Without Borders’. The analogy is simple and clear and as relevant today as it was a decades or so ago.  Of course some of the company names will seem outdated but the concept remains as robust as ever and of course the global economy is more intricate and intertwined as ever.

Imagine a dinner menu with a fixed menu and an à la carte menu (see Table 1 below). As an investor, you can choose the fixed menu of country allocations, such as the US, Europe, Japan or Asia. We prefer the à la carte menu by which we look at the world from an industry perspective and select a favourite dish in each country.

Imagine another list (see Table 2) which portfolio managers might choose from, from the Dow Jones index and a list of auto producers.

The greater your knowledge, the higher the probability of success

Everything we have learnt from a business and economic point of view tells us it is much easier to deal with and analyze Manager B’s list because it is comprised of companies in the same industry. One can examine competitive position, cost structures, profit margins, capacity growth, etc. Even international questions such as the impact of currency swings, interest rates and duties can be analyzed more easily from the industrial perspective using Manager B’s list.

Analyzing Manager A’s list is more difficult. Comparing IBM or McDonalds to Nike is not easy. What you can say or conclude is limited. However, if you compare GM to Honda or BMW, things become clearer. It is more natural to compare GM to Toyota than to Walt Disney.

In order to shop in a very large store with excellent products, prices and variety, it follows that one has to go to the global store but how does one increase the probability of achieving superior investment results in a world without borders?

Getting it Right

The greater your knowledge, the higher the probability of success.  But a little knowledge may be damaging and too much knowledge can hurt as you may end up focusing on the details to the detriment of the larger picture.

The Valuation Model

The valuation model and the quality of the analysis and judgment are very important in order to be able to properly interpret the facts. The better and more rigorous the analysis, the higher the probability of being right.  This is usually improved by looking at a variety of situations.

Amplitude of Valuation Distortions

The greater the valuation distortions are, the greater the odds of being right.   A corollary of this is that the wider the population of investment candidates to choose from, the greater the probability of finding undervalued securities.

When you widen your analysis, you increase the investment candidates and the environment in which they operate.  As knowledge increases, the quality of analysis should also improve. As you increase your population of companies, the chance of finding cheap stocks increases.  Thus, the probability of making right decisions increases.  Superior investment returns are attained by the consistency of making the right investment decisions.

People often say that to invest in Europe, one needs a European manager.   It should be noted that to do quality analysis and observe valuation distortions, the manager’s location is unimportant.

You may retort that some people have better sources of facts.  Clearly, the investor or portfolio manager who plays golf with a senior executive of General Motors may have an edge over the one who does not.  However, in today’s world, we believe that those benefits are eroding, due to the quantity and speed with which information is now made available

The question we hope to raise through this article is whether the allocation decision is best made with a top-down approach, that is to say, an approach which distributes funds between world markets periodically, or, by an ongoing analysis of industries and companies which compares valuations and opportunities on a global basis.

Table 1:

Fixed Menu A la Carte
US S&P 500 Chemicals Semi-conductors Forest Products
Japan Nikkei 225 Metals Airlines Auto
U.K. FTSE 100 Media Retail Oil & Gas
Germany Dax Telcom Mining Food Processing
France CAC 40 Healthcare Pipelines Software

Table 2:

Manager A Manager B
Dow Jones Companies 10 International Auto Companies
Microsoft McDonalds Corp Toyota Motor Renault SA
Boeing Co Nike Ford Motor General Motors
Pfizer General Motors Fiat Chrysler Volvo AG
Coco-Cola Co Walt Disney Honda Motors Scania
Cisco Systems Procter & Gamble BMW Hyundai

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Vintage Wine Market Update – June, 2021

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The international wine market is  quite different from how it looked 10 years ago.  While Bordeaux used to be the dominant growing region, its trade share by value is now just  slightly more than 35%, according to Liv-ex.   That the market continues to broaden is a positive thing for wine lovers across the world, offering them a chance to discover great bottles to enjoy.

Furthermore, a broader wine market is also an important factor to take into consideration when building a wine investment portfolio.   A well diverse collection of wines is a key to wealth preservation.

Liv-ex reports that the Fine Wine index 100 is now close to the highs reached in June 2011.  The index 100 is the industry benchmark, including the price movement of the 100 most sought-after fine wines in the secondary market.   Over the past 12 months, the Index 100 has steadily climbed despite many hurdles along the way, such as Brexit, COVID-19, US tariffs and stock market fluctuations.

As of the first week of June, Liv-ex index Champagne 50 is showing the best performance with a year-over-year gain of 13.2%, followed closely by the Burgundy 150 index’s 9.9% increase.

Bordeaux 2020 and the En primeur campaign

The verdict is out:  the 2020 vintage is definitively part of a trilogy of excellent vintages along with 2019 and 2018.    Wine critics also agree that it is an irregular vintage.  The well-established rivalry between left bank and right bank, Merlot versus Cabernet Sauvignon seems to be going full swing right now, with some wine professionals stating that the Merlot grape is showing better than the Cabernet.

However, the more reserved wine critics seem to think that it is not so clear-cut and that both left and right banks have produced outstanding wines.    The key factor is the soil composition and the well-known concept of “terroir”.   In other words, the capacity that some estates have to cope with difficult climatic growing seasons due to the quality of their land and having the financial resources available to do what is necessary in the vineyard.

In comparison with the 2019 vintage, there has been a slight increase In prices, of between 5 to 10%,

The world of auctions

As Christie’s summarizes it: “Asian buyers continue to drive global demand”.   With a sell-through rate of 88% and half of the lots selling above their high estimates, the May week-long series of auctions in Hong Kong was certainly considered a success.   On May 20th, 98% of the wines offered were sold for a total of US$5.9 million.   Three magnums of DRC Romanée Conti 2004 were sold for US$129,359.

Still in Hong Kong in May, Sotheby’s sold 99% of its lots for a total of close to US$16.5 million. The star of the show was a unique lot of 6 bottles of Vosne Romanée Cros Parantoux 1989 from the famous Henri Jayer, which sold for over US$386,000.

The possibility of following the auction and bidding online has been greatly beneficial to the auction houses.   It opened the door to a much younger crowd of buyers around the world and Asia in particular.

Bordeaux is back

The wine-making style for the 2020 vintage is more in line with classical Bordeaux – producing wines that are less extracted, with lower levels of alcohol and softer maceration.  Freshness is a recurring adjective in tasting notes.  According to many wine critics, the 2020 vintage is a continuity of what has been happening for the past few years.

In terms of trade, Bordeaux wines are back in demand.  The suspension of US tariffs, a succession of excellent vintages with a superb but relatively under-priced 2019 vintage are contributing to a renewal of interest.   Famous brands such as Lafite Rothschild are currently very popular on the secondary market.

Burgundy 2019:  an overview

Is the 2019 vintage in Burgundy an extraordinary one?   It would seem to be the case according to merchants and wine critics who agree that quality is present across the board from regional and village appellations to the most sought-after Grand Cru wines.  Balanced wines are present for both reds and whites, with great aromatic expression and fine but powerful tannins.

For most wine professionals, this is a unique vintage of superb quality with great aging potential.   The down side of this vintage is the quantity. Frost in springtime and a long dry summer contributed to a rather smallish production.

In conclusion, the general quality of the vintage 2019 offers the opportunity to buy wonderful white and red wines from less well-known and less expensive appellations.   A chance for everyone to taste the magic of great Burgundy.


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Spreading Your Risk

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Portfolio diversification will help protect your investments and increase returns on these investments.

Portfolio diversification is the spreading of risk by investing in several asset categories (equity, bonds, cash, real estate or precious metals) or several industries or several different markets. How does diversification help reduce your investment risk?

How Diversification Reduces Risk

Let us suppose that your portfolio consists of one stock. What is your risk? There is the broad risk that comes from the general economy, such as the business cycle, interest rates, the inflation rate and exchange rates. Then there are the specific risks which come from the company’s financial position, internal policies, marketing efforts, etc. These latter risks are specific to that company and not to other companies in the economy. By adding another company with a different business, you reduce your portfolio risk as long as the firm-specific influences on the two stocks differ.

Now assume that your portfolio consists of an airline company and a computer company as an example. When oil prices rise, airplane fuel price increase, which in turn lowers the airline’s profit margins. At the same time, computer chip prices may be declining, improving the margins of computer manufactures. The two effects offset one another, stabilizing the portfolio’s returns.

A client’s equity position can be spread over many sectors of the economy including industrials (chemicals and auto manufacturers), financials (banks and insurance companies), energy (oil and natural gas producers), forest products (newsprint and market pulp), transportation (airlines), retailing, health-care, and communications.

By adding more stocks with different characteristics, one can lower the risk by spreading it over many equity positions. However, you cannot eliminate risk. No amount of diversification can reduce an investor’s risk to zero. When all risk is related to a specific company, the diversification can reduce risk to very low levels. The remaining risk is market risk which is non-diversifiable. Any claims of a ‘riskless’ investment should be treated as dubious. Although there exist complex quantitative techniques that are designed to hedge against risk, they can never eliminate it.

As a Hong Kong-based investor, you should consider diversifying internationally since both the stock market and the local economy are heavily geared to real estate. It is impossible to diversify into a broad range of industries so one should look abroad. International diversifications can improve portfolio performance.

The value of the whole Hong Kong Stock Exchange is approximately US$6 trillion of which only half is open to investors. An adjustment must be made for corporate cross-holding, legally restricted shares, large private holdings, etc. Although this may appear a large sum, it is small when compared to the world’s major equity markets. The US and Chinese markets have a combined value of approximately US$60 trillion, Hong Kong represents only 10 per cent of these two markets. The other Asian equity markets, other than Japan, are even smaller, in comparison.

Diversifying Internationally

There are many possible approaches and many different views on how to diversify internationally. Some of the steps you should consider are the selection of currencies, industries, companies, countries and securities.

You could choose a mutual fund which covers the countries and currencies you wish and the fund will select a diverse portfolio of securities for you. A private banker or broker with an international firm can provide you with research materials to back up any suggestions that they may have. Some discretionary fund managers specialize in providing international diversification in equities and fixed income.


Diversification helps to reduce investment risk and to increase returns for your investments. Just remember that you have to keep your initial investment objectives in mind when choosing a method that works best for you.

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Due Diligence

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When it comes to selecting a firm to handle your investments, it pays to do your homework

When selecting an investment firm, there are a few factors you should keep in mind.  Regardless of who recommended a prospective investment adviser, you must conduct your own due diligence.  You know your investment objectives best and you are the one who will have to live with the decision.

The toughest part is knowing what questions to ask.  First, let’s touch on some important rules of thumb.  You should understand the risks and the expected returns of the investments you choose.  Just as important, is understanding how the investment firm’s employees are compensated.  You should have clear expectations on how your investments will be monitored, including the quality of the statements and how often are investment review meetings held.  You should know how fees are charged.   Are they fixed or based on assets?   Are they based on commissions?   Are there any hidden fees?

Tips for Choosing a Firm

Big is not always better.  Sometimes smaller firms can do a much better job at meeting clients’ objectives.   Imagine you are shopping in a popular area.  You are in a hurry to finish.  It is easy to move around when you are by yourself.  However, if you are amongst a dozen people linking arms, it will be impossible to move faster than the crowd.  In fact, you become the crowd.

There is no uniform standard of service and expertise that clients can expect to receive.  However, any company or person who deals in securities or commodity futures, or gives investment advice in Hong Kong, must be registered with the Securities and Futures Commission (SFC).

You should meet the management and ask about staff turnover.  This can affect you in many ways.  If the person you deal with regularly change over, you will have to build up another relationship.  If a fund manager leaves, future performance may not be the same as in the past.  If administrative personnel change, will you still receive your statements as usual?

How the firm is remunerated from your business is extremely important, as is knowing how your account officer or broker is paid.  Are their interests closely aligned with yours?  Are they paid a fixed fee on assets managed?  Are they paid commissions?  Are they paid by investment performance?  Although your statements may not show commission fees, you may nevertheless be paying them.

Client service is important.  Ask to be shown sample statements.   Are statements clear and comprehensible so that they facilitate monitoring your investments?  How often are statements provided?   How accessible is your adviser to respond to your questions and address your concerns?   Are you invited to educational seminars?

Does the firm have related services, such as dealing with overseas mortgages or trusts?  Will this be important for you in the future?

Choosing your Account Manager

Your account manager will be the person with whom you have the most contact.  What experience does he or she have that is relevant to your situation?  What sort of professional training does your account manager have?  What is his or her investment philosophy?  Is it consistent with the firm’s?

Do you think you will be able to build a long-term relationship with your account manager?

Monitoring your Adviser

Once you have determined your investment objectives and chosen an adviser to help you meet those objectives, you must manage the relationship and monitor your investments.  The key to a successful relationship is regular and effective communication.  It is the investor’s responsibility to update the adviser regarding any changes in investment objectives and circumstances.  In turn, it is the adviser’s responsibility to regularly report on how well the stated objectives are being met.

One way to ensure poor investment returns is to change investment advisers frequently by running after the short-term star performers.  However, you might consider changing your adviser if they are unable to manage your investments according to your objectives, there is a high turnover of key personnel, there are changes in the level of service, there are changes in investment style, or changes in trading activity.

At the end of the day, it is your money that is being invested and usually it is your future that you are planning.  Therefore, investment decisions should not be rushed.  You should do a fair amount of research.  Ask a lot of questions. Investment professional want you as a client, so don’t forget that you are in the driver’s seat.

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Making the Right Choice

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Click here for the introduction to our “Investing in the Post-Covid Era” series of materials.

Choosing the right investment advisor is crucial. ChapmanCraig offers some advice

Once you have established your investment goals, you will find it much easier to choose the investment professional best suited to meet your objectives. It is not relevant whether it is local or foreign, as long as your needs are met with the quality of service you wish.  However, given the variety of investment advisors and products available, how does one choose?

Types of Financial Advisors


Choosing the right investment advisor is crucial. ChapmanCraig offers some advice

Once you have established your investment goals, you will find it much easier to choose the investment professional best suited to meet your objectives. It is not relevant whether it is local or foreign, as long as your needs are met with the quality of service you wish.  However, given the variety of investment advisors and products available, how does one choose?


Brokers advise and make investment recommendations.  Upon your consent, they execute transactions on your behalf.  It is a shared responsibility; they do not manage your assets.  Generally, brokers or investment banks with private client departments charge commissions on transactions or ‘spreads’ on over-the-counter transactions.  Working with a broker is best for people who have the time, the interest and the knowledge to trade themselves.   Brokerage fees are set by exchanges in some cases and deregulated in others.   Your broker should be able to tell you the relevant commission rates.

Mutual Funds

These funds offer investors the advantage of diversification and professional management.  A mutual fund is operated by an investment company or a bank.  It raises money from shareholders or unit-holders and invests it in stocks, bonds, options, commodities, money-market securities and various other assets.

There are ‘open-end” and ‘closed-end’ funds.  ‘Open-end’ funds are the most common.  Open-end unit-holders buy the shares at net asset value and can redeem them at pre-determined times, usually daily, at the prevailing market price.  ‘Closed -end’ funds issue a limited number of shares, which are then traded on a stock exchange.

Mutual funds may be a good place to start investment programs because they require lower minimum investments (HK$10,000-80,000).  However, they can be extremely costly when associated fees are considered.

Discretionary Investment Management

Here, an investor determines the investment objectives under which the account will operate and an investment manager is given the authority to develop and implement the investment strategy in order to reach those objectives.  This category provides diversification and professional management like mutual funds, but it is more tailor-made to each individual’s objectives.

Fees for discretionary managers are lower than those for most mutual funds.  They generally charge an annual management fee with the rate decreasing as assets increase and sometimes a performance fee.  Unlike mutual funds, the investor actually owns the securities in their investment portfolio and they can be sold at any time.  The minimum investment in this category ranges from HK $2-10 million.

Hedge Fund and Commodity-trading Advisors

Here, an investor determines the investment objectives under which the account will operate and an investment manager is given the authority to develop and implement the investment strategy in order to reach those objectives.  This category provides diversification and professional management like mutual funds, but it is more tailor-made to each individual’s objectives.

Fees for discretionary managers are lower than those for most mutual funds.  They generally charge an annual management fee with the rate decreasing as assets increase and sometimes a performance fee.  Unlike mutual funds, the investor actually owns the securities in their investment portfolio and they can be sold at any time.  The minimum investment in this category ranges from HK $2-10 million.


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Investing Basics

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Click here for the introduction to our “Investing in the Post-Covid Era” series of materials.

What are your financial goals when investing your money?

The most appropriate questions to ask yourself when considering your personal investment options are ‘what is the purpose of this capital?’ and ‘what are my investment objectives?’   This may appear obvious and logical, but in reality, most people start not with an assessment of their financial goals, but instead by considering specific investments – putting the cart before the horse.

If you were planning a holiday, would your first priority be the type of aircraft in which you would like to fly?  Most certainly not.  You would likely consider whether it is a family holiday, a sightseeing holiday, a skiing or beach holiday, then narrow down your options, considering specific destinations, departure dates, length of stay, etc.  You probably would not know anything about the airplane until you were on board.

In fact, most people spend more time planning their holidays than their personal investments.  They choose holidays that reflect their specific interests, and may take different types of holidays depending on what interests are paramount at a given time.

Yet when people consider their investments, they usually seek to satisfy one objective only: to make a lot of money in a short period of time.  This is not appropriate.  You most likely have a variety of financial objectives which you should set out in an investment statement.  This statement can help you in the planning process to achieve your financial goals.

Have you just sold a business and wish to invest the proceeds in order to have sufficient after-tax income to provide for current living expenses?  Do you wish to make provisions for your children and grandchildren?  Are you planning for an early retirement at a certain standard of living?  Are you looking to fund a special project?   The more clearly you define your objectives at the outset, the easier it will be to implement an investment plan.

The most important subjects to be addressed are: risk, returns, liquidity, time horizon, legal structure and taxes.


Risk must be approached from two perspectives: emotional and financial.  From an emotional viewpoint, you must determine your tolerance for volatility, typically thought of as the variation in the value of an investment over time.

Will you be able to sleep well when the value of your investment drops 15 per cent in a few days?  Most people like volatility when it earns them profits, but not when they suffer losses.

From a financial perspective, risk can simply be defined as not having money when you need it or want it. Can you risk losing your investment capital?   On the other hand, another risk that many people do not recognise is inflation.  Leaving money in a bank account may be risky if inflation erodes the value of your assets and income flows.


What rate of return will allow your investments to grow to your required level?  Is it realistic and achievable?  The MSCI World index has had a compounded annual growth rate of 9.9% over the ten years to December 2020; it would be unrealistic to expect, for example, 25% returns over a long period.

Investors often overlook the impact of compound returns on growth.  Gains compounded, that is to say reinvested over many years, improve your investment returns exponentially.

Too often, investors seek to time individual investments, that is “buying low and selling high”.  Even though gains in financial markets come in concentrated periods, they are difficult to time consistently so as to maximise gains.  Thus, it is better to focus on an average annual return over three to five years rather than shorter periods of a year or months.


How quickly can your investment be converted into cash?  Bank deposits are more liquid than a real estate investment.  It may be important for you to have the ability to liquidate assets quickly to meet other financial obligations.

Time Horizon

When will the capital, or part of the capital be needed?  This helps determine what asset allocation is best suited to you.  Asset allocation is simply a determination of what proportion of your investments are held in different asset classes, such as cash, bonds, equity and real estate.  You may have more than one time horizon.  For example, in five years you may wish to buy a home, and 15 years later you may wish to live on the after-tax income generated through your investments.

Legal Structure and Taxes

Where your objective is to provide for future generations or where you want your investments to be confidential, you may wish to consider establishing a trust. If you have concerns about social and political uncertainties and the desire to minimise overall tax exposure, investing via a corporation in a tax haven is a possible option.  Establishing a trust and an offshore corporation for your investment can be complementary. By first determining your investment goals, you will be better prepared to make available legal structures serve your purposes.

Statement of Objectives

Putting this all together into a statement of investment objectives will help you to formulate an investment plan, to choose an investment adviser and even to guide you to the investment vehicles best suited for you.  You can develop your own statement of objectives on one or two pages and review it from time to time.  It will prove to be a valuable tool to help you achieve better investment returns.

Formulating a Plan

Once you have determined your investment objectives, you can begin to formulate your investment plan. If you already have investments, you can compare how well your current investments match your objectives. You are now in a better position to choose the right investment professional (private banker, broker/dealer, discretionary fund manager) for your personal needs. Just as your holiday plans change over the years so will your investment objectives.  Remember that fine tuning investment goals is a dynamic process which will change as your objectives change at different stages of your life.

A simple illustration will demonstrate how the process works. Let us examine possible changes in objectives that will occur in a couple now in their early 30s and then during their late 40s or early 50s. Personal characteristics such as risk tolerance will probably remain the same.

In the first stage, objectives may be heavily weighted towards capital appreciation as the investors have sufficient income to support their family and a 10 to 15-year time horizon for their investment goals. This would dictate that a greater proportion of their assets be allocated to diversified portfolio of stocks than to bonds and cash.

In their late 40s, they will likely shift their asset allocation more toward fixed income investments in the currency of the country where they will be setting up a second home.  They will be better able to take advantage of the capital markets at that time because they will have the flexibility to alter their investments over a longer period to meet their new objectives, the mandate for their investment advisor will become much clearer.

In the longer term, when the investors reach their mid-50s, they may wish to have the financial ability to spend part of the year in another country where their children are attending university or working; to purchase a home, cars and golf club memberships there; and to travel extensively to Europe while only working part of the year.

With these clear objectives in mind, they will be able to better determine how their assets should be invested to provide them with the capital required to set up a second home as well as the capital base necessary to generate the after-tax annual income required to meet their living expenses,  such as the cost of maintaining two homes, travel and university costs.


There is no guarantee for achieving financial success.  However, establishing clear investment goals before you begin to invest, makes it more likely that you will be successful.

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