Taking a mutual shot?

Take your pick: Roytrin Mutual, Republic Money Market Fund or even UTC Growth and Income Funds, they are there for the taking.

Local investors are being bombarded with advertisements encouraging them to sink their money into these funds. Eye-catching ads like “You know you’re a Trini when you invest in UTC units” and “Have great expectations - Invest in Roytrin Units” greet potential investors every morning in newspapers and during prime time slots on television at night. The returns are spewed out like clock work. According to the latest Central Bank Economic Bulletin money market funds (MMF) and equity funds (EF) are the most popular mutual funds, even though the MMFs may attract more investors than equity funds.

However, equity funds out performed money market funds primarily because money market fund returns average about six to eight percent while equity funds produce in double digits. The Bulletin revealed that in the six months to June 2002 overall investments in the mutual fund industry amounted to $9,904.8 million, registering growth in excess of $808 million or 8.9 percent. The majority of these investments (86.4 percent) were held in the country’s four TT dollar and two US dollar denominated MMFs. Overall investor savings doubled in the six months to June 2002 as compared with the corresponding period the year before. The Central Bank noted that consistent with a general softening in short term interest rates in the financial system, investors in the TT dollar MMFs earned smaller returns compared to 2001. However, these rates remained well above those available in the commercial banking system and comparable with yields on treasury securities.

“The industry’s ability to out perform the market in this regard is a major factor informing the expanding portfolio of MMFs,” the Central Bank said. Returns on money market investments ranged between 8.64 and 7.25 percent with a median rate of 7.75 percent as compared with a range of 11.14 and 10 percent and a median of 10.35 percent during the corresponding period in 2001. With such a strong performance last year, financial gurus are predicting that this year’s performance might be even better, with a more stable interest rate and Government’s heavy borrowing in the market which will “mop up” some of the excess liquidity in the system. It is in this light that investors are being urged to invest in mutual funds.   

Clarry Benn, executive director, the Trinidad and Tobago Unit Trust Corporation (UTC) said now is the best time to buy units, especially in long-term funds.  He noted that since the UTC’s funds are primarily invested within local financial markets, any deterioration in the local economy would have a simultaneous effect on the returns that they can offer to their customers. “However, our funds are invested in a diversified portfolio of financial instruments which would mitigate the risks to our unitholders. Therefore, the UTC would be in a position to offer the best possible returns to our unitholders,” he assured.

Described as the pioneer in the local mutual fund industry, the UTC is still the major provider of mutual funds representing 51 percent of the total mutual fund industry. The UTC offers five mutual fund products which include The Growth and Income Fund; The Money Market Fund; The Universal Retirement Fund; The US Dollar Money Market Fund and the Chaconia Income and Growth Fund. They have a total of 409,393 accounts in all these funds, except the Chaconia Fund which has 6,193 accounts. This is the largest number of investors mobilised by any single financial institution. The UTC has also expanded its operation to include consultancy and advisory services with regards to the establishment of mutual funds in other countries such as Dominica, Belize and maybe Nigeria. Distribution to unitholders from all funds in 2001 totalled $388.35 million, a 32 percent increase over the distribution for 2000 which totalled $294.97. For the year 2002, $473.66 million was paid out.

Benn said the response to mutual funds has indeed been greater than that to normal savings products, mainly because of the higher returns that can be obtained from investing in them. The average returns on a regular savings account is one to two percent while a fixed deposit can average returns between three and four percent. It often involves the individual foregoing access to their funds. Benn said the current annualised return on the UTC money market fund is in excess of six percent and their participants have full access to their funds.

Additionally, unlike the traditional savings products, he noted that there are no service fees or withdrawal charges applied to any of their funds. “The prospect of higher returns with continuous access to one’s resources makes mutual funds more attractive than the traditional savings products. In fact, for the past three years the growth of resources in mutual funds has exceeded the growth of deposits in deposit taking institutions,” he said. Higher returns is just one reason to invest in mutual funds. They also provide an easy way for the average individual to participate in the equity and bond market, he said, noting that the funds are invested in a diversified portfolio, which reduces the risk to the mutual fund participators.

Stephen Bayne, managing director, RBTT Trust Ltd agreed with Benn, saying that now is a good time to invest in mutual funds. He said the stock market’s performance for 2002 was very positive — the All TT Index increased by 32.65 percent and has shown continued growth for 2003 to date. “Our present economic indicators continue to be strong. Hence the reason for it being a good time to invest,” he said. RBTT Trust Ltd currently offers five mutual funds — Roytrin TTD Income and Growth; Roytrin Mutual USD Income and Growth; Roytrin Mutual TTD Money Market; Roytrin Mutual USD Money Market and the Praetorian Property Mutual Fund ( an initial public offering (IPO) issue that is now traded on the TT stock exchange. It was launched jointly with Guardian Life and RBTT). There are about 50,000 investors in these funds. Bayne said while mutual funds were not traditionally offered at the bank it was introduced to satisfy the needs of clients who were looking for portfolio diversification; wealth accumulation; professional management; cost effective investment opportunities; affordability and flexibility. He said that their TTD money market rates declined in 2002 due to the soft interest rate environment, noting that they have seen an improvement in the interest rate environment and expected this to continue in the coming months.

“Clients who invest in mutual funds will benefit from the returns of pooled investments, which include stock, bonds, mortgages, money market instruments and other short term investments. A person who invests in mutual funds can, therefore capitalise on the opportunity for higher returns at a lower level of risk.” “Clients are now more informed and sophisticated, and require a product that could maximise their returns, in relation to their risk tolerance. Mutual funds present this option, and so although a client will conduct a savings account to facilitate his ‘everyday expenses’ the savings and investment aspect are done via mutual funds.”

“Return is just one aspect of the advantages in investing in mutual funds. It is also important for a person to understand higher returns means higher risk,” he added. Bayne recommended that every investor consider mutual funds as part of their portfolio mix. However, he advised investors to always read the prospectus before buying any fund. Simone Penco, manager, Commercial, Scotiabank said the old adage, ‘buy low, sell high’ is certainly at the forefront of the minds of investors who feel now is the time to get into the market before the recovery takes full effect. But, the question still remains, ‘is this the best time to start investing in mutual funds?’” She said if mutual funds are an appropriate investment choice for an investor (and they are not for everyone), then now is certainly the right time to start investing in them. “To enjoy compounded growth with any investment, it is better to start early.” 

The Scotiabank family of mutual funds currently available in TT consists of: Scotiabank Money Market; Scotiabank USD Bond Fund; Scotiabank Global Growth; Scotiabank US Growth; Scotiabank Canadian Growth funds. Penco noted that these funds were introduced to the bank’s branch network in October 2002 in an effort to broaden the line of products and services available to their customers. She said the response from customers has been favourable, despite the difficult time equity investors have been experiencing in the last few years.

Christopher Sandy, manager, Fund Management, Republic Bank said while it is always a good time to begin investing in mutual funds, it should be noted that one should only invest in them after having established a “rainy day” fund. This “rainy day” should comprise of funds saved for three to six months living expenses in case of unforeseen circumstances like loss of regular income; funds required for known liabilities that will be due over a three year period like vehicular expenses. Local mutual funds were first introduced to Republic’s customers in April 1998 because the bank wanted to provide both individuals and corporations who were seeking short and medium term to long term investment growth, with simple, convenient and efficient avenues for investing in various portfolios of securities.

The bank offers: Republic Money Market Fund (RMMF); Republic Caribbean Equity Fund (RCEF). Sandy said during 2002, interest rates fell as a result of liquidity build-up in the banking system that was driven by reduced economic activity. However, in 2003, he said interest rates are likely to be more stable as Government is expected to be a heavy borrower in the market, and as a result excess liquidity will be taken out of the system. “At the commencement of 2003, we find the TT economy better placed than at anytime in the past two years. With continued low interest rates and good economic growth expected, the stock market is well placed for positive returns in 2003,” he said. “In the long term, we envisage that the market for mutual funds will continue to grow at a more rapid rate than previously experienced.”

Nadia Ali, manager, Trust Services, First Citizens Bank Trust and Merchant Bank Limited, advised that each investor should always’s read the fund’s prospectus before investing in order to make an informed investment decision. The Prospectus gives information such as sales charges, the fund manager, investment objectives, tax considerations and risk factors. She added that since mutual funds qualify as securities and not deposits they are neither guaranteed nor insured. “A general rule is that the higher the potential rule, the higher the risk. In mutual fund investing, the volatility and return will depend on market trends, investments held by the fund and the fund manager’s investment strategy,” she observed.

FCB currently offers one mutual fund product : the Abercrombie Fund, a TT dollar money market fund with over 18,000 investors. Ali said there has been a phenomenal response to this fund since its introduction in October 1998. The value of the fund in 2001 was $599 million and jumped to $774 million in 2002. “We expect this fund to continue to perform as well as it has been performing,” she assured.