Investment decisions: A look back at the top picks of 2010

Who came out on top in terms of return on investments in the roller coaster ride of 2010?

KARACHI: As the new year approaches some of us have more of a reason to celebrate than others. The outgoing year has been a difficult one in terms of spiraling inflation and volatility in global markets. Making a profit on investments has been as difficult in Pakistan as most other places in the world - given the ever-present risks to equity prices and ever-changing value of commodities. Not to mention the low returns on fixed-income deposits, not just in Pakistan, but across the globe.

Who then amongst us came out on top in terms of return on investments in the roller coaster ride of 2010? The Express Tribune put the question to renowned financial experts and their responses suggest that even in the relatively depressed economic conditions, investors had more than just a couple of avenues available to keep their money growing.

Equities

Vice President BMA Capital, Hamad Aslam said: “Stocks were on top in 2010, no two ways about it.” Share prices of “Oil and Gas Development Company, Hub Power Company, Fauji Fertiliser and Pakistan Petroleum Limited are currently at the highest rates they have ever been,” he said, adding that these stocks have also turned in double-digit dividend yields over the past two years.

The equities guru contended that even if individual investors had picked the relatively less volatile equity-based mutual funds, which are diversified into different sectors of companies listed at the exchange, “they would still have made returns that matched the performance of the benchmark index.”

That would translate into a gain of about 26 per cent given the rise of the KSE-100 index from 9,386 points back in January to 12,031 points on December 30.

Term finance certificates

However, not all experts agree that equities should have been the investment of choice in the outgoing year.

Assistant Vice President IGI Investment Bank Zain Suharwardy has spent the year advising individual clients and companies on the best alternatives for parking their cash. “Term finance certificates (TFCs) were my most popular choice throughout the outgoing year,” said Suharwardy.

The return on a typical AA-rated bank’s TFC stood at about 18 per cent for the year. Engro also launched its Rupiya certificate, a similar investment instrument with a yield of 14.5 per cent. “These TFCs are as good as bank deposits because they are backed by the State Bank of Pakistan,” he pointed out.

Suharwardy acknowledged that equity prices surged much higher than the return on these instruments but added “the stock market was flat for most of the year and even the late rally that has been witnessed is not broad-based but limited to a few select stocks.”

Gold

“If an individual was willing and able to take on risk, then gold was definitely the investment to bank on,” said Head of Research InvestCap, Khurram Shehzad.

International prices of the precious metal surged by $314 per ounce over the calendar year to end at $1,411 per ounce. “Given the dismal state of global economies, it is likely that gold will continue to offer handsome gains,” added Shehzad.

However, he warned that volatility in prices of the precious metal makes it an investment not meant for those who lack the capacity to book losses in the short term.

Interest rates trended higher during the year on the back of successive increases in the policy rate announced by the central bank. However, persisting inflation chewed down even double-digit returns on investments to meagre levels. A fellow journalist quipped that “prices of food items surged so quickly that sugar, tomatoes and onions would also qualify as great investments for the year.”

But for those of us who still have some regard for laws and ethics, it appears equities offered the best chance of windfall gains during the year, while mutual funds provided decent returns without demanding s leepless nights spent following gyrating international markets. So kudos to all those who caught the right trends at opportune times and for the rest of us: better luck in 2011!

Published in The Express Tribune, December 31^st, 2010.