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By Martin Scicluna
Collective Investment Schemes (CISs)
This article will attempt to investigate some of the important opportunities that will become available to the local investor(a).
Initially we will have a look at the types of CISs available and then we will have a look at the various types of collective investment schemes that will be available in the Euroland market.
Local History: Collective Investment Schemes
CISs were popularised in Malta in the latter half of the 1990’s when the listing/floatation of Malta Government Bonds and local equities were traded on the Malta Stock Exchange in a dematerialised manner, i.e. all transactions and records were electronic in nature.
Investors during the initial development of financial markets in Malta found CISs to be a useful vehicle to participate in the market without having to make the all important decisions as to which securities to own, buy or sell.
Products investing in local securities quickly gained acceptance and popularity and the investor had access to the following broad types of vehicles:
Sovereign Bond funds (Malta Government)
Corporate Bond funds (local companies borrowing via the Local Stock Exchange).
Local Equity and Foreign Equity (combination) funds.
Today there are some MTL570m worth of Investors’ money in locally produced CISs.
The European Market for CISs
Throughout the EU there are approximately Euro5trillion worth of assets in CISs (not necessarily invested exclusively in the EU or in the Euro). The market is therefore significantly larger than the local market. What is significant is not only the matter of size but more the diversity of CISs that can be found and considered for investment needs. The choice within the various assets classes and currencies is truly immense.
Advantages of CISs
Collective Investment Schemes are ideal for retail investors, i.e. the investors who would like to seek investment opportunities in the bond and share markets without taking inordinate levels of risks.
Typically a CIS will pool money collected from many investors and invest the proceeds in a large number of securities, say a 100. When an investor puts money into a CIS he is allocated a number of ‘units’ which are valued regularly to indicate the value of the investment. This approach will not only provide ‘instant diversification’ to the investor but also provide the expert services of a fund manager who will normally actively manage the portfolio of securities for the benefit of the investors.
CISs normally incur various types of charges (to compensate the Investment Manager). These typically include a combination of front end joining and/or back end fees and / or an Annual Management charge. It is important to note that the charges associated to a CIS will largely depend of the types of assets held within the fund. Equity funds for example inherently have higher costs than bond funds.
Some CISs contain a cost element in the way the units are priced eg. via a spread between the selling and buying prices of the units. Some CISs are single priced i.e. there is no bid / offer spread in the way the units are valued.
Types of CISs
A large liquid market plus the added benefits of no exchange risk in the investment currency (in our case the EURO) can provide the local investor with some of the following typical examples:
Country specific Funds, e.g. a balanced fund (bonds & equities) investing in a specific country say Germany.
Industry Funds, e.g. combinations of different securities in one sector say Banking and Finance, Pharmaceuticals, Retailing, etc.
Single Asset class Funds, e.g. a Property fund which includes investments either in direct property or in shares of companies which invest in direct property. Similarly there could be Global Bond Funds, US Equity, etc.
Specific Equity Funds, say large Cap exposures. A typical fund could invest exclusively in the shares of companies which are considered ‘blue chip’, i.e. very large, well established companies. There are also Medium Cap and Small Cap type of Funds.
Regional Funds, i.e. a fund which invest say in emerging markets in the EU
The combinations are practically endless and a selection process of what fund is appropriate and suitable for a particular investor should be made via a professional financial planning meeting with a person licensed by the Malta Financial Services Authority.
Conclusion
HSBC Malta can provide you with individual solutions. Our needs based assessment of your financial position now and in the future will enable you make the decisions that can provide you with the security, comfort and peace of mind that you deserve.
For further details about an appointment with a licensed and competent Financial Planner please access our website www.hsbc.com.mt, call Customer Service on 2380 2380 or visit any branch in Malta and Gozo.
HSBC Bank Malta p.l.c. is licenced by the Malta Financial Services Authority to conduct investment services business and is a tied insurance intermediary for HSBC Life Assurance (Malta) Ltd under the Insurance Intermediaries Act 2006
FOOTNOTES
(a) Qualifications
The principles outlined above are core fundamentals of the Collective Investment Scheme industry. Malta’s potential entry in the Eurozone will bring the benefits to the Maltese investor without currency exchange risk. Malta’s entry to the Eurozone, in isolation, does not bring the benefits described.
The US Dollar, the Sterling pound and the Japanese Yen, are international investment currencies. The EURO is also an International investment currency. The largest (by value) investment market in the world is the US market.
The decision whether Malta joins the Eurozone has not yet been taken although a political decision is expected within the next 3 or 4 months.
Typically CISs are not capital protected and should be considered for investment horizons of 3 – 5 years minimum. |
