The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalFidelity Merchant Bank & Trust’s mutual fund family has enjoyed its “third straight year of positive returns” following their 2012 restructuring, with its equities fund generating near-20 per cent for investors.

Joseph Euteneuer, the investment bank’s vice-president of mutual funds and business development, told Tribune Business that 2015 had been “fantastic” for its three-strong fund family.

Disclosing that all had generated positive returns for clients, Mr Euteneuer said the Targeted Equities Fund had outperformed the market through its investments in BISX’s best achieving stocks.

He added that subscriptions to all three funds, which also include the Secure Balanced and Prime Income Funds, continued to increase as small retail investors drove a broadening of their client base.

“2015 was fantastic,” Mr Euteneuer told Tribune Business. “I think this is the third straight year of positive returns.”

RoyalFidelity’s Targeted Equity Fund, which is invested almost entirely in stocks, generated a 19.58 per cent return for the 2015 full year, he added.

Mr Euteneuer attributed this to the Fund’s investments in some of BISX’s best-performing stocks of 2015, such as Cable Bahamas, Fidelity Bank (Bahamas) and Commonwealth Brewery - all of whom had produced price appreciation and dividends.

“A lot of people look at that and say: ‘How can that be?’,” Mr Euteneuer said of the Targeted Equity Fund’s market outperformance. “But, in a small market, if you hold a portfolio of specific stocks that does well, your fund will do disproportionately well, too.”

The BISX All-Share Index, which measures only capital appreciation (stock price increases), rose by 10 per cent in 2015. Adding in dividend payments by listed companies, and the market generated average investor returns of 13-14 per cent last year.

Mr Euteneuer emphasised that the Targeted Equity Fund was not “looking in the rear view mirror”, and was currently assessing which stocks were likely to offer the best 2016 returns for its $25 million in assets under management.

He added that the Secure Balanced Fund, which features a mixed equity/fixed income investment portfolio, produced a “very good” 10.44 per cent return for 2015.

And RoyalFidelity’s Prime Income Fund, which focuses almost exclusively on fixed income investments (preference shares, bonds and bank deposits), generated a 4.67 per cent return for its Bahamian investors last year.

“That’s probably our biggest challenge at the moment; trying to maintain a net yield to clients on the fixed income side,” Mr Euteneuer told Tribune Business.

“The portfolio is very large, so to affect something positively or negatively you have to have large positions. You have to buy enough of a security to have a real affect on the portfolio.”

The Prime Income Fund is RoyalFidelity’s largest, with $100 million in assets under management. Mr Euteneuer agreed that this reflected the generally conservative, risk averse appetite of Bahamian investors, who prefer certainty over the possibility of greater returns.

“Just by the way the portfolio is right now, it’s probably a good bet it’s going to return between 4-5 per cent net of fees on an annual basis,” he added of the Prime Income Fund.

“It’s very unlikely it’s going to make more than that, and given the nature of the securities in the portfolio, it’s not likely that it’s going to make less.

With the Secure Balanced Fund having attracted $61 million in investor subscriptions, RoyalFidelity’s three-strong fund family is rapidly approaching $200 million in combined assets under management.

“We’re still definitely in net positive mode with subscriptions in all the funds,” Mr Euteneuer said, “which means we’re still attracting investors.

“What’s encouraging to me is that the base of investors is broadening. You can easily have a few large investors in your fund, which would skew those assets to just a few people.

“What we’re seeing is the participation of large investors, putting in $1 million or more, and the participation of smaller investors starting with $5,000, $10,000 and $20,000,” he added.

“That is a very welcoming sign as far as I’m concerned. It tells me that Bahamian investors from all walks of life are interested in doing something to save for their futures.”

Mr Euteneuer told Tribune Business that the expanding investor bases were “very healthy” for the funds themselves, and explained: “You don’t want to be subject to just a few people who, if they decide to redeem from the fund at the same time, can cause a cash crunch.

“A broadening investor base is a good idea, and we’ve seen that happen over the last few years.”

Mr Euteneuer added that RoyalFidelity’s fund family restructuring in 2012, which involved the Secure Balanced Fund’s creation, was designed to create “three different levels of risk for three different levels of risk appetite”.

“What’s rewarding for us is that the returns on those funds have corresponded to the risk profile,” he said.

“The other thing that the restructuring allowed us to do was to change the structure in such a way that would allow people to move from one fund into the other without any penalties, and no difficulty.

“We definitely made it more competitive from a fee perspective, and that clearly affects your return. We made it easier to transition from one fund to the other.”