By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
RoyalFidelity Merchant Bank & Trust yesterday said it had seen “overwhelming” 75 per cent growth in its fixed income mutual fund for 2012 to-date, adding that it was “having a hard time” keeping up with the pace of new subscriptions.
Joseph Euteneuer, the investment bank’s mutual fund manager, told Tribune Business that the influx of new money into its Prime Income Fund had driven total assets under management from $16 million at 2011 year-end to today’s $28 million - a $12 million increase.
Suggesting that the increase had been driven by last year’s Bahamian Prime interest rate cut, and subsequent drop in bank deposit rates to relatively low levels, Mr Euteneuer said Bahamian investors had been forced to seek alternative investments offering higher returns.
He told Tribune Business that many investors had been forced out of their ‘comfort zone’, the low yields forcing them to abandon practices such as merely rolling over term deposits and consider other options, something that was helping the Bahamian capital markets to mature.
The trends seen with the Prime Income Fund have yet to carry over to RoyalFidelity’s flagship Growth and Income Fund.
Conceding that this mutual fund had endured “a rough ride” during the four-year recession, as investors sought to escape perceived Bahamian stock market volatility, Mr Euteneuer said the Growth and Income Fund’s total assets under management had dropped to a current $10.3 million.
He added, though, that the Growth and Income Fund had enjoyed positive net asset value (NAV) returns during three of the past four months, and hoped the trend would continue.
And, while RoyalFidelity was tentatively looking at the 2012 third quarter for the launch of another TIGRS international sub-fund - its first since December 2011 - Mr Euteneuer said everything depended on the level of Bahamian investor appetite for the product.
Indicating that the Prime Income Fund, which invests in fixed income securities such as preference shares, government and corporate bonds and bank deposits, had become RoyalFidelity’s current fund ‘Crown Jewel’, Mr Euteneuer told Tribune Business: “We’re just trying to keep up with subscriptions into that fund.
“The lower interest rate environment has forced people to consider other options, which is good for mutual funds. The vast majority of Bahamians are accustomed to rolling over fixed deposits.
“With the Prime Income Fund we have added $12 million since January 2012. Since January 1, there has been 75 per cent growth. On January 1 we had $16 million, and it’s now $28 million.
“That is big. It’s been substantial, overwhelming. That’s quite a bunch of growth. That’s a reflection of people who are searching for higher yields in a fairly illiquid market. ”
Mr Euteneuer added that the high level of new subscriptions coming into the Prime Income Fund “creates other problems for investment managers in this market”, namely “trying to get enough high yielding, fixed income securities to properly diversify a portfolio.
“I think there are some potential offerings coming up over the next several months,” the RoyalFidelity manager added.
“We’re trying to secure some of that and add to the portfolio of securities we’re invested in.
“It’s nice to have these problems, but we need fixed income securities on the local market that we can use to put into the fund.
“I’m happy, I’m not displeased about it. I’m more happy that people are looking at their options. That’s the hardest thing, as people get comfortable doing certain things, and don’t go beyond their parameters.”
And, noting the wider implications of the Prime Income Fund’s growth, as Bahamian institutional and retail investors seek relatively safe investments with higher returns, Mr Euteneuer added: “It’s a further indication of a maturing capital market.
“There’s bumps in the road, but this is one step towards further diversification of the capital markets that also benefits everyone at the end of the day.”
Due to the volatility plaguing the Bahamian equity markets since 2008, the story has been different for the RoyalFidelity Growth and Income Fund, which is targeted towards higher yielding - but riskier - stock market investments.
“It’s doing better,” Mr Euteneuer said of the Growth and Income Fund. “It had benefited from some dividend payments over the last two quarters. It’s had a rough ride, but is not doing too poorly.”
Despite suffering 3 per cent negative returns for both January and February 2012, and a 20 basis point NAV decline in April, the Growth and Income Fund generated positive returns of 2.17 per cent and 2 per cent, respectively, for May and June 2012.
That followed a positive 1.36 per cent return for March 2012, and Mr Euteneuer said: “I’m looking at a trend that I hope continues.
“Three out of the last four months were positive. I’m cautiously confident this trend will continue, and hopefully we will see the return of some decent returns in the Growth and Income Fund.
“Hopefully, for the Fund and remaining investors we will start to see an uptick, people will get interested and we will see more subscriptions. That would be exactly the opposite situation of the last four years.”
Confirming that the Growth and Income Fund’s total assets under management had slipped to $10.3 million, Mr Euteneuer said its performance was dependent on the share prices and dividend payments of the underlying companies it was invested in.
He took as an example BISX-listed AML Foods, saying that while the company’s stock had been “in the dumps for a long time”, its recent initiatives - Solomon’s Fresh Market in western New Providence, securing a lease for the same concept at Harbour Bay, and a second Solomon’s store in Freeport - meant the retail group was likely to deliver improved earnings.
As for RoyalFidelity’s family of TIGRS international mutual funds and sub-funds, Mr Euteneuer said that while numerous ideas were being assessed, nothing had been finalised when it came to developing a TIGRS 6.
Noting that the last one, TIGRS 5, was unveiled in December 2011, Mr Euteneuer told Tribune Business: “We like the idea of introducing something new for this market.
“We’re continually evaluating new ideas and figuring out what we can do. We’re taking some of these ideas out and speaking to institutions and people.
“You’re kind of shooting in the dark. It doesn’t matter what my research shows, it’s what people are interested in pursuing. That has to be the main consideration before launching anything.
“We’re hoping to do something in the third quarter, but that’s one of many things in the pipeline. I’m reluctant to push anything out before I have an idea of whether there’s appetite for it.”
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