Are you a professional financial advisor? Register for Globe Advisor and then sign up for the weekly newsletter on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.
With cryptocurrency prices at a low ebb, investors might be tempted to put some money into these speculative assets. What should advisors tell them about the risks?
When clients want to test the water, one of the first things advisors should do is help them avoid becoming shark bait. Scammers can smell fresh chum from miles away.
The U.S. Federal Trade Commission’s Consumer Protection Data Spotlight report published in June found more than 46,000 people in the U.S. alone had suffered from cryptocurrency scams since 2021, with losses totalling more than US$1-billion. That’s up from US$130-million in 2020.
The market’s wild growth lured many naive investors afraid of missing out, says Greg Taylor, chief investment officer at Purpose Investments Inc. in Toronto, which offers cryptocurrency exchange-traded funds (ETFs).
“There was a greed factor that got in,” he says. The hype blurred the line between investment and gambling and attracted some unsavoury characters.
“When you get speculative excess, you must be wary of fraud. It happens in every bull market.”
Those frauds are many and varied. In some cases, cryptocurrency exchanges themselves are guilty. In 2020, the Ontario Securities Commission described Vancouver-based exchange QuadrigaCX as a Ponzi scheme after it left users with a $169-million shortfall.
The different types of scams
Some scammers focus on alternative coins (altcoins) with small market capitalizations, says Dragan Boscovic, research professor at Arizona State University and founder and director of its Blockchain Research Lab. These are classic targets for pump-and-dump scammers who stoke the coins’ reputation with social media posts.
“There’s a lot of activity and the price of those assets with very low market caps and high volumes rises relatively fast,” he says. Naive investors, perhaps remembering bitcoin’s huge growth, pile in.
“Once those bad actors are satisfied, they sell all their assets and then the price goes down very quickly.”
Initial coin offerings (ICOs) are a variation on the theme. These token sales are typically tied to decentralized online services and promise big returns. Many have been exit scams in which the founders misused the funds and didn’t deliver the promised services. Canadian and U.S. regulators have cracked down on these sales, deeming them securities.
Other scams steal assets from victims’ cryptocurrency wallets directly.
Michael Zagari, associate portfolio manager at Mandeville Private Client Inc. in Montreal, recalls a phishing e-mail that targeted owners of the ethereum blockchain’s ether coin. The perpetrators exploited a forthcoming change in the way that the ethereum cryptocurrency blockchain generates its ether coins. It told owners that they had to open access to their cryptocurrency wallets to prepare for the change. Anyone who did so had their funds stolen.
Ethereum owners didn’t actually need to do anything to prepare for the change, says Mr. Zagari, but the e-mails were convincing enough to fool people unfamiliar with the technology.
Advisors need education
Mr. Zagari says as an advisor, it’s his job to update clients on these developments, adding that many of his colleagues are still unprepared to guide clients on the risks of cryptocurrency investing.
“They don’t understand it and are avoiding the conversation,” he says. “Dealership compliance departments haven’t invested in understanding it either.”
The first step for advisors in helping clients understand cryptocurrency is to educate themselves. Then, it’s down to a mixture of common sense and technical knowledge.
Advisors should persuade investors to understand what they’re buying rather than treating cryptocurrency as a purely speculative move, Mr. Zagari says.
“Look for a solid use case. What problem is it trying to solve?” he adds.
Investing in safer bets
Clients should be investing in assets with high market capitalization, says Mr. Boscovic, pointing investors to well-established coins with high liquidity.
Mr. Zagari cites bitcoin and ethereum as the two go-to assets. He typically advises clients to expose no more than 5 per cent of their portfolio to direct cryptocurrency holdings.
Rather than managing the security of those assets in their own wallets, many choose to invest in a cryptocurrency ETF from companies like Purpose Investments or Evolve Funds Group Inc. These ETFs own cryptocurrencies and store them with New York-based Gemini Trust Co. LLC, a custodian that holds them in “cold storage” – meaning the digital keys used to access the wallet are not accessible via the internet.
Mr. Zagari will also advise clients to hold a larger proportion of their assets – up to 10 per cent – in investments that expose them indirectly to the cryptocurrency markets. These are typically cryptocurrency services companies.
The appeal of cryptocurrency mirrors that of other disruptive technologies, Mr. Zagaripoints out. It offers potentially high returns.
“That means you don’t need a lot of cash to make a lot of money,” he says.
However, it’s up to advisors to explain the risks involved, informed by a robust understanding of the underlying market dynamics and technology. Then, they must apply that understanding to the client’s personal circumstances to factor in cryptocurrency investments as part of a broader investment strategy.
For more from Globe Advisor, visit our homepage.
FPIs pump in Rs 8,600 crore in September; pace of investment slows – Economic Times
After infusing more than Rs 51,000 crore last month, foreign investors have slowed down the pace of equity buying in India in September so far, as they invested a little over Rs 8,600 crore, on sharp depreciation in rupee. Going forward, Foreign Portfolio Investors (FPIs) are unlikely to buy aggressively amid rising dollar, VK Vijayakumar, Chief Investment Strategist at , said.
Indication of further rate hike by the US Federal Reserve, fears of a recession, depreciating rupee and continued tensions in Russia and Ukraine will affect FPI flows, Basant Maheshwari, smallcase manager and Co-founder, Basant Maheshwari Wealth Advisers LLP, said.
The latest inflow comes following a net investment of Rs 51,200 crore in August and nearly Rs 5,000 crore in July, data with depositories showed.
FPIs turned net buyers in July after nine straight months of net outflows, which started in October last year. Between October 2021 till June 2022, they sold Rs 2.46 lakh crore in the Indian equity markets.
According to the data, FPIs have bought equity to the tune of Rs 8,638 crore during September 1-23.
However, FPI activity has turned highly volatile with alternate bouts of buying and selling. They have sold on seven occasions in this month so far. In fact, in the last two trading sessions, they have pulled out Rs 2,500 crore from the Indian equity markets.
Vijayakumar has attributed increased FPI selling in recent days to rising dollar and rising bond yields in the US.
In addition, the 75 basis points (bps) rate hike by the US Fed for the third consecutive time to control rising inflation and the surging dollar have impacted FPI buying, Wealth Advisers LLP’s Maheshwari said.
“The US Fed’s hawkish tone on interest rates and the fear of a global recession fuelled pessimism among investors,” Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities, said.
Foreign investors have been slowing down their equity buying in India since September. The scenario turned adverse after a hotter-than-expected inflation report dashed hopes that the US Fed would scale down its rate hikes in the coming months.
The August US inflation edged 0.1 per cent higher from the preceding month to 8.3 per cent. Compared to one year ago, it eased as it was 8.5 per cent previously.
The aggressive stance of the central bank chair, which made it apparent that the Fed will once again go for another 75 bps hike for the fourth consecutive time in its next meeting as well, dented sentiments and turned investors risk averse towards emerging markets like India, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.
Also, currency movement is another factor that FPIs track very closely as it has a significant impact on the returns that they make on their investments in any country. Therefore, the outflows tend to accelerate in a scenario of rapid currency depreciation.
The sharp depreciation in Rupee as it touched all-time low of Rs 81.09 against the dollar does not augur well for foreign investments, he added.
“With the dollar index above 111 and the US 10-year bond yield above 3.7 per cent FPIs are unlikely to buy aggressively, going forward. The situation will change if the dollar index and US bond yields decline,” Vijayakumar said.
In addition, foreign investors have pumped in Rs 5,903 crore in the debt market during the month under review.
Apart from India, FPI flows were positive for Indonesia and Philippines, on the other hand, South Korea, Taiwan and Thailand witnessed outflows during the period under review.
Top 3 investment bets for millennials to beat market volatility and make money – Economic Times
There is a thrill for many to do things that are so-called out of the ordinary. As mentioned in the first part of this story, millennials are the impatient investor class who are all up to ignore the stereotypes, bet even on riskier investments.
On that note, in the first part we talked about three new-age investments that go beyond the ordinary for the millennials or the digital natives. To know more about millennials and more about the investment options, you can read the first part here:
Top 3 new-age investment bets for millennials looking to take risk and earn big
Nonetheless, it is never bad to be cautious. A roller coaster ride is fun at the amusement parks but when it comes to using the hard-earned money, no one will be keen to lose their savings. It is often said volatility is the daily crux of the market. Experts also opine it can be a motivation to capitalize on the imbalances.
“Volatility is the ghost that haunts you only if you look at it. The best way to avoid volatility is to ignore it; don’t trade into a market when there’s euphoria or out of it when there’s panic. Instead, constrict and hold a diversified portfolio for the long term, or better still, a mutual fund, which isolates individuals from volatility shocks,” Utkarsh Sinha, managing director at boutique investment bank firm Bexley Advisors said.
The economy too is at a volatile juncture with slower-than-expected growth recovery and galloping inflation. For stocks, the plausibility of earnings growth is diluting and valuation is said to trade below the long-term average. So, what could be better than to have some safe options even during a volatile period, enjoy the thrills of new-age investments and still achieve the monetary goals?
Girirajan Murugan, the chief executive officer at FundsIndia, lists more instruments that will help millennials to avoid some volatility:
InvIT – Infrastructure Investment Trust
This involves a trust channeling investments from individuals/institutions toward infrastructure projects. In a developing country like ours, the demand for good infrastructure is huge and perennial, in my opinion, Murugan said, adding that an investment in an InvIT with a good management will be a fruitful investment for the long term.
However, most infrastructure projects are subject to government regulations and interference. Change in the political space could affect such investments. Lack of choices to choose from is a severe disadvantage. Being a budding avenue, the participation in this investment is comparatively low. This means that selling them in the current market could be difficult. However, if the market for this type of investment takes off, then this concern will be void.
REIT – Real Estate Investment Trust
Similar to InvITs, REITs pool resources to invest in real estate assets. “Real estate investment has not lost its flair even today, despite being a conventional investment. That’s exactly why I’d like to call this a “grandfather-approved investment,” Murugan said.
By enabling part ownership, REIT has made real estate more accessible for all sections of people. REIT investments buy you ownership to the property in question, proportionate to the investment made. The income from this asset shall also follow the same proportion.
There are 2 categories of REIT – tradable and non-tradable. Some non-tradable REITs disclose the share values only after 18 months. Non-tradable REITs also carry the disadvantage of less liquidity.
ESG (Environmental, Social and Governance) Investing
In this mode, the investment is directed toward the development of businesses that toil for the betterment of the world. One can either invest through readily available ESG Mutual Funds, or they can identify the right companies and invest in their stocks.
“As far as ESG investing is concerned, it’s a thumbs up from me, and I say this from an ethical standpoint. The reason is that a good planet and a harmonious society are something we can’t survive without. When it boils down to it, man will eventually be forced to choose survival over profitability. If you choose to do it for the purpose, rather than for profitability, this may be one of your best investments,” Murugan said.
ESG assets are on track to exceed $53 trillion by 2025 and represent more than a third of the $140.5 trillion in projected total assets under management (AuM), according to Bloomberg Intelligence.
Bexley Advisors’ Sinha said millennials are at the best point of their lives currently to invest, as they have the bulk of their lives ahead of them. With these options explained, the millennials perhaps have better insight on the options available. Remember how we introduced the generations in the first part of the story and talked about an angry young man from Bollywood? Well, keep the swag and invest with prudence.
How rising interest rates impact insurers' investment decisions – Canadian Underwriter
Recent interest rate hikes aimed at curbing inflation, and the potential for more rate hikes next year, has the insurance industry keeping an eye on its investment returns.
But while the transition from a low-interest-rate environment to a higher-rate environment will create short-term challenges, it also creates a long-term opportunity, noted Gord Dowhan, CFO at Wawanesa Insurance in a recent Canadian Underwriter interview.
“Over time…higher interest rates can create an opportunity for us to increase our yield moving forward,” Dowhan said. “As bonds mature, it gives us the opportunity to invest at a higher rate.
“You’ve seen this experience in Europe and elsewhere, where they were at zero percent and negative interest-rate environments in some cases. Having higher rates is healthier than being in that environment [of extremely low or negative interest rates], and there’s definitely an opportunity for us to pick up yield and investment returns within our investment portfolio as those instruments mature.”
For an insurer’s portfolio, Dowhan noted a rising interest rate environment makes certain investment instruments more attractive. And his firm has some of these in place, including preferred shares, limited recourse capital notes, and floating-rate or variable-rate debt.
“We’re also looking at real estate and infrastructure investments. From a rate-reset, preferred-share perspective, this gives us the opportunity to increase our yield; the dividend yield resets regularly based on five-year government bond yields,” he said.
“In a rising rate environment, this gives us an opportunity to increase our returns. Floating-rate, or variable-rate, debt has become increasingly attractive as rates rise. We’ve invested in and will continue to invest in floating-rate debt and look for opportunities to grow our portfolio there.”
What’s more, Dowhan said that during high inflationary periods, real estate and infrastructure tend to outperform other asset classes.
“The underlying instruments within these products, leases and other revenues that produce revenue streams linked to inflation, is one reason why they typically outperform other asset classes during periods of high inflation,” he told CU. “So, opportunities exist for us to enhance our yield in the long term and continue to deliver value for our policyholders.”
This article is excepted from one that appeared in the August-September issue of Canadian Underwriter. Feature image by iStock.com/porcorex
Montreal percussive dancers step in to tell stories of Black art and history – Montreal Gazette
Brandon teepee art project celebrates strength, resilience during Truth and Reconciliation Week – CBC.ca
Q&A With Javier Peres, Founder Of Peres Projects Art Gallery – Forbes
Silver investment demand jumped 12% in 2019
Europe kicks off vaccination programs | All media content | DW | 27.12.2020 – Deutsche Welle
Global Media Markets, 2015-2020, 2020-2025F, 2030F – TV and Radio Broadcasting, Film and Music, Information Services, Web Content, Search Portals And Social Media, Print Media, & Cable – GlobeNewswire
News24 hours ago
Tesla announces nearly 1.1 million of its car windows can pinch a person’s fingers
Art14 hours ago
Artists of the past captured historical events: Renfrew Art Guild – Ottawa Valley News
Politics18 hours ago
Bill Blaikie, longtime Manitoba politician who served federally and provincially, dead at 71 – CBC.ca
News18 hours ago
Storm Fiona knocks out power as it hits eastern Canada – Al Jazeera English
Science20 hours ago
NASA’s DART spacecraft is about to smash into an asteroid – Freethink
News24 hours ago
Former Chinese Justice Minister sentenced to life imprisonment for corruption
Sports5 hours ago
Alek Manoah the man as Blue Jays score big bounce back win over Rays – Toronto Sun
Health21 hours ago
Every 22 minutes a Canadian woman dies of a heart attack. Most of those deaths are preventable – CBC News