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Fidelity Funds In 45% Restructuring Boost

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Joseph Euteneuer

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalFidelity Merchant Bank & Trust yesterday said the “major move” it made in restructuring its mutual fund family appeared to have reaped rewards, with assets under management up by as much as 45 per cent since 2012 year-end.

Joseph Euteneuer, RoyalFidelity’s mutual fund manager, told Tribune Business it was “very gratifying” to see the pay-off from last November’s restructuring, with his funds producing returns between 3.29 per cent to 10 per cent for the first nine months of 2013.

The restructuring has coincided with the upturn in Bahamian equity market performance, and Mr Euteneuer said all three RoyalFidelity investment funds had attracted multi-million dollar investment inflows year-to-date.

He added that his main problem was the lack of enough new fixed income issues, such as bonds and preference shares, to absorb the cash subscriptions investors were injecting into the Prime Income Fund.

This fund invests exclusively in fixed income securities, and without the additional returns provided by new offerings, Mr Euteneuer said he was often left with surplus cash acting as “a drag on the portfolio”.

Acknowledging that he could have “worse problems”, Mr Euteneuer said last November’s restructuring - which saw the creation of a third RoyalFidelity fund, the Secure Balanced Fund - had given investors seeking a mixed equity/fixed income portfolio the opportunity to build this under one roof.

RoyalFidelity had previously offered Bahamian investors just two fund options - one focused solely on equity investments, the other on fixed income.

“We restructured our funds to do a number of things, provide more stability in the structure than we had before and add a new fund into the mix, a Balanced Fund,” Mr Euteneuer explained.

“You can now go into one vehicle and get a balanced allocation in the local market. This was a major move for us. It took a lot of work and effort, and was time consuming to do, and it’s very gratifying and justifying in many ways that nine to 10 months after the fact, it’s turned out the way we had hoped.”

The Secure Balanced Fund offers investors a 60/40 split between fixed income and equity investments, weighted in favour of the former, putting an end to the previous practice where persons wanting such a mix had to split their investments between the other two funds.

Mr Euteneuer, meanwhile, told Tribune Business that RoyalFidelity’s Targeted Equity Fund had benefited from the improved capital markets showing, generating “really good” returns of 10 per cent for the first nine months of 2013.

And he added that the Secure Balanced Fund and Prime Income Fund had delivered returns of “just over 7 per cent” and 3.29 per cent for the same period, respectively.

“The reason the Prime Fund is down there is because there really have not been very many new fixed income offerings for the size of our portfolio,” Mr Euteneuer explained.

“We do expect there to be several others, but they haven’t come out through September. There are several supposed to happen on the fixed income side, and for a lot of reasons they get delayed. I don’t know of any new non-fixed income issues coming up.”

The Prime Income Fund will likely get a boost from the $45 million Public Hospitals Authority (PHA) bond issue that launched earlier this week. For 2013 to-date, the main fixed income issues have been the Grand Bahama Power Company and Arawak Cay Port Development Company preference share offerings, plus Fidelity Bank (Bahamas) bond issue.

“In terms of fixed income, there needs to be more issues out there for there to be more returns on the fixed income side,” Mr Euteneuer said.

“We’ve got to be able to top up returns on the portfolio. We get a lot of investor interest in the fund, cash coming in every month, so we have a cash drag on the portfolio until we’re able to buy something.

“We hold off until the issue’s out, and hope we get enough of it to make a difference for the portfolio. We have to get enough of an allocation to have an effect.

“We’re very mindful of that, and working towards better yields, higher yields within the standard risk parameters of the fund.”

He forecast that the Prime Income Fund would still be able to deliver investor returns approaching 4-4.5 per cent for the 2013 full year.

Total assets under administration in the Prime Income Fund currently total $45 million, having increased by $3 million from the $42 million level at end-March 2013.

And, compared to 2012 year-end levels of $35 million, the Prime Income Fund’s assets under administration are up 28.6 per cent or around $10 million to end-September.

“That’s a lot of money going into fixed income without having anything to buy,” Mr Euteneuer reiterated, “and that’s without counting the coupon from the underlying assets.

“What do we do with all the cash in the market when there’s nothing to buy? I could think of worse problems.”

Elsewhere, Mr Euteneuer told Tribune Business that the Secured Balanced Fund was “generating a lot of interest and getting regular subscriptions”.

This, he added, had boosted the fund’s assets under management by 45.5 per cent in the first nine months of 2013, compared to year-end 2012 levels, taking the figure from $16.5 million to $24 million.

As for the Targeted Equity Fund, this had “benefited tremendously from the uptick” in the Bahamian equities market. Its assets under management stood at $12 million at end-September 2013, compared to $9.73 million at the 2012 year-end.

“I’m sure we’re not the only ones in the market happy the market has come back to some form of profitability,” Mr Euteneuer said. “I’m sure the other broker/dealers are happy as well.”

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