Trust chief says ‘way to go for small investor’

The vaults of a local financial house are now bulging with, not only dollars, but with pride, over the successes last year, of its family of Mutual Funds. As a matter of fact the Roytrin Mutual Funds, which four years ago enjoyed a mere six   percent of the market, has shown phenomenal growth where today it now claims some 36 percent of the mutual funds market. The Unit Trust Corporation, the original mutual fund enjoys just under 50 percent, leaving remaining 14 or so percent divided among the other players in the game.

Commenting on Mutual Funds, Stephen Bayne, Managing Director of RBTT Trust Limited told Business Day, “Mutual Funds was the ideal vehicle for the small investor, since it allows for the pooling of investments.” It also gives the small investor access to investments, to which they would not normally have been able to reach, he said, noting that  it also allows for “a certain amount of diversification while at the same time allowing your investments to be managed by professional money managers.” RBTT Trust Limited declared recently that the Roytrin Family of Mutual Funds saw its total assets jump from $4.8 billion to $7.2 billion during 2003, a percentage increase of 50 percent. Its membership climbed by some 22 percent during last year to reach more than 61,500.

And all of this took place while the local economy was realising a Gross Domestic Product (GDP) growth of between four and five percent last year, led of course, by the energy sector, with some modest contributions from non-energy economic partners. The Roytrin Family of Mutual Funds consists of two TT-dollar and two US-dollar denominated funds, a Money Market Fund in each of the two currencies and an Income and Growth Fund in each of the two currencies. The Money Market Funds protect unitholders’ capital while offering competitive interest rates and the interest is compounded daily and paid monthly, while the Income and Growth Funds are geared for long-term investors since they consist of equity and fixed income and since they carry no load, the unitholders realise the full Net Asset Value per unit on redemption.

The best performing  is the TT$ Income and Growth Fund, which over the years have given investors an average return of 15.97 percent every year. According to Bayne, this kind of return was achieved because of the “balanced nature of the Fund over the period since it benefitted from the income of the bond portfolio and capital appreciation from the equity portfolio.” The value of the Fund’s assets at the end of 2003 stood at TT$612.5 million, an increase of 62 percent over the previous year’s value of TT$378.5million. According to Bayne, the strategy for the current year is to gradually increase the portfolio’s weighting in equities. “This is put forward in the context that we expect interest rates to remain low for the medium term and new opportunities for growth on the domestic stock exchange to present themselves,” he added.

Although the $TT Money Market Fund was hampered somewhat by the low interest rates which prevailed throughout 2003, the Fund was still able to grow by 42 percent, jumping from $3.18billion at the end of 2002 to $4.51billion at the end of 2003. So while the local monetary system was dogged by excess liquidity, which resulted in lower interest rates, unitholders were able to realise an annualised return of 6.20 percent, which was higher than the Central Bank’s three-month Treasury Bill average of discount rate of 4.76 percent. “In fact,” said Bayne, “2003 saw a reduction in rates across the board on deposits of all sorts as presented by the Central Bank Monthly Statistical Digest. The Fund continued to be a superior option for investors when compared to conventional fixed deposits.”

Bayne forecasts that the excess liquidity will continue to exert downward pressure on interest rates and the strategy for this year would be to invest in quality investments with superior risk return profiles for the short to medium term. “This will mean that the Fund will remain more attractive than traditional fixed deposits available in the market,” Bayne pointed out. In the US dollar Funds however, the action is slightly different. The Income and Growth Fund, the youngest in the family grew by 68 percent to US$1.99million from US$1.18million the previous year and posted an annualised return of 5.87 percent for last year. In the Unitholders’ report Bayne said, “Signs of a strengthening US economy, encouraged the Fund’s managers to invest in equity. The fund has already begun to benefit from this equity investment with positive returns since the investment was made.”

However, while the fund has a short track record, astute investing over this period saw an annualised return of 6.04 percent, making it the best performing fund of this kind offered on the local market, the report pointed out. The strategy this year is to increase its investment in the US equity market as the size of the Fund grows. The other US-dollar denominated Fund - Money Market Fund enjoyed a 59 percent increase last year climbing to US$337.83million. It is believed that unitholders were attracted to the Fund by the superior yields when compared to the USD deposit rates offered by other financial institutions. In spite of this performance and growth, the annualised return of 5.71 percent last year was lower than that of 2002. According to Bayne in his report, “It illustrates that the USD cash flows are not insulated from high liquidity in the domestic financial system.”

It was explained that as the size of the fund grew, this facilitated further diversification in securities from US domiciled issuers. “We believe inclusion of such instruments will improve the risk profile of the Fund,” said Bayne. Planned strategy for this year is to create a diversified portfolio of sovereign and corporate paper that would increase the yield, while at the same time monitoring the risk. Meanwhile the Central Bank has forecast continued expansion in the local economy. It expects increased production in the energy sector in 2004, especially LNG, through the commissioning of Train III. Real GDP is expected to grow by as much as 5.5 percent and inflation is expected to remain relatively stable, though there may be some upward pressures from pending wage negotiations.

On the other hand as excess liquidity lingers on, there is expected to be continued softening of interest rates on the domestic market, but the forecast is that the local stock exchange will have healthy returns this year, especially with companies with strong corporate earnings. Bayne sees the possibility of even lower interest rates during the course of this year and he named two factors, which could change that scenario - inflation and appreciation of the US dollar.  He pointed out that if the inflation rate increase rapidly, the Central would have no choice but to institute a more aggressive reserve policy. If the USD picks up significantly and interest rates in the US swing upwards, it could affect rates on the local market.