Q&A with CMMB Securities

Q: I read that headline inflation in TT is down and so is core inflation. What’s the difference between the two and which one impacts on my investments? 

- Curtis, Tobago  

A: Given the low interest rate environment, consumers are becoming increasingly concerned about rising inflation levels. Inflation is typically defined as the rate of increase in the general level of prices for goods and services. Rising prices usually imply a fall in purchasing power, since one dollar can now purchase a relatively smaller amount of goods and services. One way in which the inflation rate is measured is through the change in the Consumer Price Index (CPI). It is this measure that is referred to as  “headline inflation.” The Consumer Price Index measures prices of a specific basket of goods and services. In Trinidad and Tobago the items in this basket usually include food, transport, housing and health with weights that reflect a household’s expenditure on the various items.

The prices of some items, such as food and energy, exhibit considerable fluctuations over time. For instance, food prices can be affected by bad weather such as flooding. The volatility of these items can skew the inflation measure. For this reason, the exclusion of food items from the CPI basket gives a measure of “core inflation,” which depicts underlying price pressures in the economy. With respect to your investment, higher inflation means the real rate of return (which measures your increase in wealth) would decline. To minimise the impact of rising prices, you should opt for more short-term instruments or money market funds, which adjust for changes during periods of high inflation. On the other hand, when one expects lower inflation, consumers may consider fixed deposits and instruments with longer time horizons.  

Q: What are the main things to look for in the prospectus of a Mutual Fund? 

- Arvin, La Romain  

A: A mutual fund is simply a vehicle that allows a group of investors to pool their money and diversify their risks together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of  the fund. Mutual funds are required to provide a fund prospectus to all prospective investors. They are also required to send all existing shareholders a new prospectus annually.

The prospectus is an official document with the aim of fully describing the mutual fund and disclosing information on the fund like: managers, policies, objectives, restrictions, services and fees. Investors should pay particular attention to the policies and restrictions of the fund and may want to note the management fees in order to compare with other mutual funds on the market. Also, an investor could compare redemption and subscription fees for mutual funds, which impact on actual returns. Finally, investors should note the portfolio mix of the mutual fund in order to assess if the overall risk is in line with their tolerance levels.

Disclaimer for Articles:
“All information contained in this article has been obtained from sources that CMMB believes to be accurate and reliable. All opinions and estimates constitute the author’s judgement as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by CMMB in any form whatsoever. “CMMB and/or its employees or directors may, where applicable, make markets and effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer or a solicitation to buy or sell.”