JS Momentum Factor ETF (-) | JSETF: - INAV

Maximize Returns: Secure Your Investment with Fixed Returns in the Maturing Rate Cycle

Chief Executive Officer

JS Investments AM2+ (Rated by Pacra)

“Finance sits in the middle, like the neck of an hourglass whose grains of sand are money and risk. Finance is a network that relies on trust.”

In a recent address, Gary Gensler[1] eloquently articulated the essence of finance- a network that relies on trust, a delicate interplay between those with money-seeking avenues for investment and those needing funds to fuel their aspirations. As asset managers, we play a central role in this complex orchestration, managing the sands of money and risk that flow through the hourglass.

If you’ve ever invested your savings in term or fixed deposits, you know the solace of stability they bring. Our newest offering, the ‘JS Fixed Term Munafa Fund,’ belongs to this secure category of financial instruments. However, before we delve into the appeal of fixed returns, we must acknowledge a fundamental truth highlighted in Gary Gensler’s speech – risk is an inherent part of finance. Despite the intrinsic capriciousness of markets, what risks could a product promising a fixed return at the end of a specific period pose?

In the face of soaring interest rates – a steep 600 basis points climb this year alone – the main risk is further hikes. Although by opting for a tenure of twelve months or less, investors can shield themselves from the whirlwind of short-term market shifts and therefore the TDR-style mutual funds have gained immense popularity in our domestic market.  Nonetheless, given our outlook on interest rates, we consciously refrained from offering this product, preferring to focus on the JS Cash and JS Government Securities Fund or our JS Microfinance Sector Fund for medium-risk takers.

However, as we navigate through a global economic landscape riddled with uncertainties from geopolitical tensions, the pandemic’s aftermath, and inflationary pressures, we believe the interest rate trajectory is now shifting. Front-loading, which had become the motto of central banks by the end of 2021, is now signaling the end as most of them have either slowed the pace or halted them altogether. This is leading global experts to a consensus that interest rates have peaked, particularly as major economies cautiously adjust to prevent hindering economic growth. This global outlook is significant for investors in Pakistan, providing valuable insights into the likely path of local interest rates. Although I will delve into our local context in subsequent paragraphs, this potential stabilization offers a strategic opportunity for investors eyeing fixed-return options. Locking in returns for an extended period, particularly in a climate where interest rates might not climb further, could be a wise move.

JS Fixed Term Munafa Fund – Plan I & II

JS Fixed Term Munafa Fund, launching its Initial Public Offering on December 26, 2023, and accepting applications until January 8, 2024, offers two attractive plans. Plan 1 promises a 17.5%* return for a 3-year** commitment starting January 8, 2023, while Plan 2 provides a 21.0%* return for a 12-month term** starting the same date at a moderate risk profile. The 17.5%* rate for three years is exceptionally enticing for those who can forego immediate cash needs. While the 21%* yield for one year is quite attractive, it’s imperative to recognize that investments maturing one year from now and beyond will be exposed to reinvestment risk. This becomes especially relevant in the current environment where interest rates have seemingly peaked.

Interest Rates in Pakistan: Peaked or Persevering?

The debate over the direction of interest rates in Pakistan is ongoing. Some argue that rates have peaked, pointing to the State Bank of Pakistan’s (SBP) policy rate stability. The SBP has been balancing the need to curb inflation with fostering economic growth, and recent policy rate stability indicates a cautious approach against aggressive rate hikes. Real interest rates are currently negative but are expected to stay this way for 3-5 months. Lately, SBP has consistently anchored the policy rate against 12-month forward inflation. However, barring a significant commodity price spike, CPI should fall below 20% in the third quarter of 2024.

There are skeptics, though. Fiscal deficits, poor tax collection, and a vulnerable rupee suggest that interest rates may not have peaked. This viewpoint is bolstered by the rupee’s fragility and the fact that real rates are still negative, with inflation as the primary concern. The debate extends to the potential for SBP rate cuts. While aggressive rate cuts might be contemplated, their feasibility is questionable in light of economic challenges.

However, we believe a more significant risk lies in delaying the locking in of yields at current levels. Those with excess cash and short-term investments beyond their standard allocation should consider rebalancing their portfolios, as the central bank is nearing the end of its policy tightening or is expected to do so in early 2024. Fixed Return Mutual Funds or higher-duration income funds offer superior income, valuations, and benefits to portfolio dynamics. They present an attractive alternative to short-term investments and haven’t been this appealing in over ten years.

Our investment strategy prioritizes the analysis of different scenarios and the evaluation of their effects in case of any deviations from our anticipated path. Recently, we conducted a simple analysis that predicted a decline in bond yields to approximately minus 100 basis points, which would result in a total return of over 19%. However, we recognize that there is also a real threat that insufficient policy tightening or other factors may prevent the recent decline in inflation, leading to further rate hikes and a rise in yields of about 100 basis points. In such a scenario, the decrease in bond prices would result in a 4.2% loss. These scenarios and their targets represent only a small fraction of the possible outcomes as we approach the end of the year and move into 2024. Nonetheless, they confirm our belief that the current risk/reward setup in our income funds is quite favorable.

The Case for Long-Term Fixed Return Mutual Funds

Against this backdrop, long-term fixed-return mutual funds are an attractive investment option for those seeking stability and long-term growth. Here are some key reasons why a long-term plan is advantageous:

Optimal Timing: The current stabilization of interest rates in Pakistan suggests that now is an opportune time to lock in favorable returns for an extended period. Unlike the unpredictable fluctuations of other investment types, these funds offer a consistent and predetermined return path.

Institutional Investors’ Perspective: Institutional investors, such as retirement fund managers or insurance companies, strive to identify a “minimum risk portfolio” when allocating funds. This portfolio is the blend of investments that meet the fund’s commitments with the least risk. Although private investors may not explicitly frame their investment plans in these terms, their objectives are broadly similar. While offering high-income certainty, cash and money market funds seldom provide returns that align with long-term savings goals, especially when those rates are transient. As inflation returns to optimal levels and short-term interest rates normalize, income funds are expected to offer returns equal to or exceeding their benchmarks. Investors with excess exposure to cash and short-term funds should consider extending the term and locking in the current yield with at least some of their surplus as we move past the peak in short rates. Recall times when retirees invested substantial sums at an 18% rate in National Savings Schemes for a lengthy duration.

Taxation Advantage: Beyond the economic scenario, investors should also consider the tax implications of their investment choices. Fixed-return mutual funds often enjoy more favorable tax treatment than traditional fixed deposits. In Pakistan, interest earned from fixed deposits is subject to withholding tax, which can significantly reduce the effective return. In contrast, capital gains from mutual funds may be taxed at lower rates, offering a more tax-efficient investment route.

Conclusion: Navigating Towards Financial Resilience

In conclusion, the current economic scenario presents a unique opportunity for investors to consider long-term fixed-return mutual funds. Understanding global and local economic trends and recognizing the potential for stability in local interest rates, combined with the tax advantages, enable informed investment decisions that align with financial goals. As we navigate a complex economic landscape, the wisdom lies in making choices that endure over time. Long-term fixed-return mutual funds, with their potential for steady growth and tax-efficient returns, offer a pathway toward financial resilience and prosperity.

All investments in mutual funds and pension funds are subject to market risks. Past performance is not necessarily indicative of the future results. Please read the Offering Document to understand the investment policies and the risks involved.
* The expected fixed rate of return mentioned above will apply from the launch date of the
plan(s) to the maturity date.
** Early redemption is subject to the deduction of contingent load, which shall be proportionate
To the net loss incurred due to early redemptions before the maturity of the plan(s).

[1] The U.S. Securities and Exchange Commission (SEC) Chair

Understanding the Inflationary Wave and Preparing for the Future

Inflation, an economic phenomenon that affects economies worldwide, has been making headlines recently, with countries including Pakistan grappling to control its surge. In this blog, we discuss the major causes of inflation, analyze the current situation in Pakistan, and explore successful strategies adopted by other nations to combat rising prices.

In Pakistan, the Consumer Price Index (CPI) has been a matter of concern, with economists anticipating its trajectory. Three significant factors contribute to inflation: demand-supply imbalances, money supply growth (quantity theory of money), and economic mismanagement. Although the drivers of inflation, such as demand and supply imbalances and the expansion of money supply, are well-acknowledged, the factor that is frequently overlooked and significantly worsens the issue is “economic mismanagement.” The management of inflation can be executed adeptly through enacting structural reforms and implementing robust economic policymaking. The success story of Switzerland serves as an inspiring illustration of how proactive measures can effectively alleviate inflationary pressures. It’s not solely about elevating interest rates; rather, it involves addressing fundamental concerns. The global economic landscape reveals that inflation has been widespread, fueled by unexpected shocks like the Covid-19 pandemic and geopolitical conflicts. Central banks worldwide have tightened their monetary policies to tame inflation, gradually cooling it down.

In Pakistan’s economics, the exchange rate remains a crucial determinant in the inflation equation. Its volatility will significantly impact interest rates going forward.

Tackling inflation through savings and investments involves strategic financial planning and decision-making. A step-by-step approach involves understanding Inflation and its impact on your purchasing power over time. The second step entails creating a comprehensive budget that outlines your income, expenses, and savings goals. Allocate a portion of your income to savings and investments. This will help you maintain financial discipline and save consistently. In the third step: Build an emergency fund that covers 3-6 months’ worth of living expenses. This fund acts as a cushion during unexpected financial setbacks, reducing the need to dip into investments prematurely. Next is to diversify, i.e., invest your savings across different asset classes like stocks, bonds, real estate, and commodities. Diversification helps spread risk and reduces the impact of inflation on your overall portfolio. Further important is to invest for the Long Term: Inflation’s impact is most pronounced over longer periods. Investing with a long-term perspective allows your investments to potentially outpace inflation and generate real returns. For instance, our fund Unit Trust of Pakistan (UTP) has delivered an impressive annualized return of 12.91% over the past 25 years, significantly outperforming the inflation rate of 9.62% during the same period.
Historically speaking, stocks have provided higher returns than inflation over the long run. Invest in well-established companies with strong growth potential and a track record of weathering economic cycles.

Also, Real estate values and commodity prices often rise in response to inflation. Consistently contribute to your investment accounts, taking advantage of dollar-cost averaging. This strategy involves buying more shares when prices are low and fewer shares when prices are high, helping to mitigate the impact of market volatility. Lastly, regularly review your investment portfolio and financial goals. As economic conditions change, you may need to adjust your investment strategy to ensure it aligns with your objectives.

We also recommend if you’re unsure about investment strategies or portfolio diversification, consider seeking advice from a financial advisor. They can help tailor an approach that aligns with your risk tolerance and financial goals. In all cases, avoid speculative investments that promise unrealistic returns or appear too good to be true. Stick to proven investment strategies and avoid risky ventures.

By focusing on disciplined saving, prudent investment choices, and a long-term perspective, you can effectively navigate the challenges posed by inflation and work towards maintaining your purchasing power over time.

Navigating the Complex World of Asset Allocation: Strategies for Optimal Portfolio Management

Effective portfolio management requires a thoughtful approach to asset allocation—a skillful balance between risk and reward. In this article, we will explore the intricacies of asset allocation and discover practical strategies to navigate this complex landscape successfully. Whether you’re a seasoned investor or just starting, understanding these principles will empower you to make informed decisions and achieve your financial goals.

What is Asset Allocation?

Imagine building a delicious buffet where each dish represents a different asset class. Asset allocation is the art of selecting and combining these dishes, or investments, to create a well-balanced and diversified portfolio. It involves spreading your investments across various asset classes, such as stocks, bonds, real estate, and cash, based on your financial goals, risk tolerance, and time horizon.


Why is Asset Allocation Important?

Asset allocation is a critical component of portfolio management for several reasons:

  1. Risk Management: By diversifying your investments across different asset classes, you reduce the impact of any single investment’s performance on your overall portfolio. This diversification helps mitigate risk and can potentially lead to more stable and consistent returns over the long term.
  2. Maximizing Returns: Asset allocation allows you to capture the potential returns from different asset classes. Each asset class performs differently over time, so by strategically allocating your investments, you position yourself to benefit from various market conditions.
  3. Balancing Risk and Reward: The right asset allocation strategy helps you balance risk and reward based on your financial objectives and risk tolerance. It ensures that you’re not overly exposed to any single asset class, reducing the impact of market fluctuations on your investments.


Strategies for Optimal Asset Allocation

  1. Determine Your Financial Goals: Start by clarifying your financial goals, such as retirement planning, education funding, or buying a home. Each goal may have a different time horizon and risk tolerance, influencing asset allocation decisions.
  2. Assess Your Risk Tolerance: Evaluate your willingness and ability to tolerate risk. Consider factors such as your age, financial responsibilities, and investment experience.
  3. Understand Asset Classes: Understand different asset classes, their characteristics, and historical performance. Stocks offer the potential for growth but come with higher volatility, while Fixed Income provides stability and income but may offer lower returns. Real estate and cash provide further diversification and risk management.
  4. Diversify Your Portfolio: Apply the principle of diversification by spreading your investments across multiple asset classes. A well-diversified portfolio reduces the impact of any single investment’s performance on your overall portfolio. Consider including domestic and international investments for additional diversification.
  5. Regularly Review and Rebalance: Markets and asset classes fluctuate, causing your portfolio’s allocation to deviate from your target. Regularly review your portfolio and rebalance it by selling or buying assets to restore your desired allocation. This ensures that your portfolio remains aligned with your long-term goals.
  6. Seek Professional Advice: Consider consulting with a financial advisor who can help assess your goals, risk tolerance, and time horizon to create a customized asset allocation strategy. An advisor can also provide ongoing guidance and monitor your portfolio’s performance.

Navigating the complex world of asset allocation is a key ingredient in achieving optimal portfolio management. By understanding the principles and strategies discussed in this article, you can make informed decisions and build a well-balanced portfolio that aligns with your financial goals and risk tolerance. Remember, asset allocation is not a one-time activity but an ongoing process that requires periodic review and adjustments. Embrace the journey, seek professional advice when needed, and let JS Investments guide you toward financial success.

Demystifying Mutual Funds: Unveiling the Magic of Investing in Pakistan

Ready to unravel the secrets of wealth creation? Look no further than mutual funds! Whether you’re new to investing or seeking clarity on how mutual funds work, prepare yourself for an exhilarating journey. JS Investments, Pakistan’s leading mutual fund company, is here to demystify mutual funds and unveil the hidden benefits they offer.

Discover the Buzz Surrounding Mutual Funds

Imagine having a team of expert financial wizards tirelessly working to grow your money. With mutual funds, that’s precisely what you get! These investment vehicles pool money from multiple investors to create a diversified portfolio of stocks, bonds, and other assets. It’s like joining forces with fellow investors to construct a powerful wealth-building machine.

Exploring Different Types of Mutual Funds

Equity Funds: For those who embrace risks and chase dreams, these funds focus on stocks, aiming to achieve long-term capital appreciation. Buckle up for an exciting ride!

Fixed Income Funds: If you seek stability and a steady income with a moderate risk profile, look no further. These funds invest in government securities and corporate bonds, offering a smooth sailing journey for risk-averse investors anchoring their portfolios.

Balanced Funds: Struggling to choose between risk and stability? Fear not! Balanced funds strike a harmonious balance between equities and fixed-income investments, catering to those desiring growth and stability.

Money Market Funds: In need of a secure haven for your cash? Money market funds invest in short-term, low-risk instruments, providing stability and easy access to your funds when you need them the most.

Unveiling the Benefits of Mutual Funds

Diversification Magic: Bid farewell to putting all your eggs in one basket. Mutual funds allow you to diversify your investments across various securities, reducing risk and increasing the potential for consistent returns. It’s akin to creating a well-rounded buffet of investment options.

Expert Management: Craving more time to navigate the complex financial landscape? Worry not! Mutual funds are managed by seasoned professionals who devour numbers for breakfast. They conduct thorough research, make informed decisions, and handle the intricacies of investing, freeing you from the hassle.

Accessibility: Mutual funds open doors to investment opportunities for everyone, regardless of income level. You don’t need a fortune to get started. With a modest amount, you can dip your toes into investing and witness your wealth grow.

Liquidity: Require instant access to your money? Mutual funds offer high liquidity, enabling you to buy or sell your fund units on any business day. Your money is just a few clicks away, providing you with the freedom and flexibility to seize opportunities or handle emergencies.

Now that you’ve peeked behind the curtain and discovered the realm of mutual funds, it’s time to take action. Your trusted guide, JS Investments, is here to assist you in embarking on your wealth-building adventure. Whether you’re a risk-taker or a cautious investor, there’s a mutual fund tailored to your needs.

Embrace the magical benefits of mutual funds. Begin your journey today and witness the wonders of growing your wealth with JS Investments by your side. Let the magic commence!

The Power of Diversification in Asset Management: A Key Strategy for Pakistani Investors

In the words of Nobel Prize laureate Harry Markowitz, “Diversification is the only free lunch” in the realm of investing. For the average middle-class investor in Pakistan, understanding and embracing the concept of diversification is crucial when it comes to managing their savings effectively.

Diversification entails spreading investments across various asset classes, including stocks, bonds, real estate, commodities, and securities within each category. Rather than relying on a single investment, it is advantageous for investors to diversify their portfolios by including a variety of assets. This approach allows investors to capture the market’s overall performance, minimizing the impact of any one investment on their entire portfolio. Think of it as not putting all your eggs in one basket.

However, it’s important to note that legendary investor Warren Buffett has also referred to diversification as “protection against ignorance.” He rightly recognizes diversification as a risk-management strategy. While systematic or market risk is unavoidable, diversification helps mitigate unsystematic risk. The primary benefit of diversification in today’s unpredictable economic environment is risk reduction. The goal is not to eliminate risk entirely but to minimize its impact.

Furthermore, diversification allows one to tap into various market opportunities as diversification and portfolio rebalancing go hand in hand, with rebalancing as a mechanism for maintaining diversification. When one investment underperforms, others may compensate and deliver positive results, balancing the overall portfolio performance. This strategy helps avoid significant losses and enhances investment stability – maximizing returns and potentially reducing the impact of any market downturns and potentially enhancing long-term returns.

At JS Investments, we understand the complexities of portfolio construction and aim to simplify them. We provide a curated selection of strategies designed by professional fund managers collaborating with your dedicated investment advisors. Our team of expert advisors specializes in understanding your risk tolerance and financial objectives, providing personalized guidance tailored to your needs. Our platform enables you to gain diversified exposure to both public and non-public assets with lower capital minimums, reduced fees, and increased liquidity. We appreciate and recognize asset diversification’s impact on achieving financial goals and offer comprehensive solutions to help domestic/local investors thrive in an ever-changing market landscape. Our team of expert advisors specializes in understanding your risk tolerance and financial objectives, providing personalized guidance tailored to your needs.

JS Investments Limited (JSIL) is Pakistan’s first private sector asset management company that provides a wide range of investment options, including Mutual Funds, Voluntary Pension Schemes, REIT Funds, Private Equity and Venture Capital Funds, Exchange Traded Funds, and Separately Managed Accounts (SMAs).

Start diversifying your investments today and secure a brighter financial future.

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