• Assets under management up 13% in bank pull-out
• Inflation producing negative 5-6% deposit returns
• Economic ‘win-win’ if $2.3bn no longer ‘doing zero’
By NEIL HARTNELL
Tribune Business Editor
A Bahamian investment bank yesterday said total assets under management in its local currency mutual funds have increased by $60m year-to-date as investors “get wise” to the negative returns on bank deposits.
David Slatter, RF Bank & Trust’s vice-president of investment management, told Tribune Business this represented a collective 13 percent increase for the eight months through August 2022 via a mix of net new subscriptions and investment returns for its Targeted Equity Fund, Secure Balanced Fund and Prime Income Fund.
With commercial banks effectively paying nothing, or close to zero interest, he added that surging inflation and escalating prices meant investors who have traditionally relied on bank deposits are presently suffering negative returns of -5-6 percent. Confronted with this reality, they are pulling funds from the banks to invest in capital markets products generating higher returns, such as RF Bank & Trust’s investment funds.
Mr Slatter told this newspaper it remains vital to put the $2.3bn in surplus liquidity in the commercial banking sector to more productive use, by investing in companies, the capital markets and greater yielding investments if The Bahamas is to sustain its economic rebound beyond merely recovering what was lost to the COVID pandemic.
The equities market recovery, he added, had generated “double digit” returns and growth for RF Bank & Trust’s Targeted Equity Fund for 2022 to-date. This concentrates its investments in Bahamian dollar-denominated stocks, while the Secure Balanced Fund is split 60/40 in favour of the same equities with a strong mix of fixed income investments. The Prime Income Find focuses solely on fixed income securities such as bonds and preference shares.
“Our Bahamian dollar mutual fund assets under management have grown by $60m, and that will be a function of net subscriptions and capital gains,” Mr Slatter told Tribune Business. “That’s a 13 percent increase year-to-date.” And, despite the downturn in US equity and bond markets, he added that including RF Bank & Trust’s international funds in the equation would produce total assets under management growth of $85m for 2022 so far.
“We are definitely in double digits for the Targeted Equity Fund,” Mr Slatter added, focusing on the local currency funds. “The Targeted Equity Fund year-to-date is up 11.85 percent through August, and then the Secure Balanced Fund is up 6.57 percent. The Prime Income Fund is up 1.79 percent.”
He explained that the latter’s performance, which typically generates returns of 4-5 percent per annum and is “now edging up close to 3 percent”, had been impacted by a lack of new investment securities into which the increased investor cash subscriptions can be placed.
“It’s a story of too much of a good thing,” Mr Slatter said of the Prime Income Fund. “We have a lot of subscriptions flowing in, and have excess cash. It’s a good thing to have excess cash to make investments as they become available, but for a while there’s been nothing to make investments in, so that’s acted as a drag on returns but, as we invest the cash, the performance will ramp up again.”
Voicing “cautious optimism” for the other two Bahamian dollar mutual funds’ performance over the remainder of 2022, he added that “there’s some value there” with all five BISX-listed bank stocks - RBC FINCO, CIBC FirstCaribbean, Commonwealth Bank, Fidelity Bank (Bahamas) and Bank of the Bahamas - shaking off their COVID loan loss provisions to return to profitability, with several resuming or increasing shareholder dividend payments.
“In the local equities market, AML Foods is up 25 percent year-to-date just on share price appreciation alone, not including dividends,” Mr Slatter said. “Other key drivers are Cable Bahamas, up 28 percent; CIBC is up 33 percent; Fidelity Bank is up 21 percent; FINCO 11 percent and Colina up 16 percent.
“It shows a very strong recovery in the local equities market. With the nature of equities markets, they’ve had some tough years but also some really good years. A lot of this has to do with adding to positions when the market was down in 2020, and continuing to add to positions in 2021 with the expectation of recovery in 2022. If you’re prudent, you invest for the long-term. When good stocks are sliding you are buying.”
Explaining the subscription surge into RF Bank & Trust’s investment funds, Mr Slatter told Tribune Business: “We have a tremendous amount of liquidity in the banking system. Investors with money in the bank are effectively earning zero interest instead of generating returns, but when you factor in inflation you actually have negative returns of 5-6 percent.
“People are getting wise to the consequences of leaving money in the bank with negative returns, so they’re pulling this money out of the banking sector and putting it into investment products.” He argued that the need to put the $2.3bn in surplus banking sector liquidity, which represents monies available for lending and investing, to better use went beyond individual investors directly to the health of the Bahamian economy.
“If you have capital in the bank and it’s not doing much, it’s not doing anything for the economy,” Mr Slatter told this newspaper. “We need to put it to use to help companies to grow and increase returns for investors, which will be a win-win for the economy as a whole. We need to make sure these capital holdings are more efficiently utilised, not just sitting there doing zero.”
Looking ahead to 2023, the RF Bank & Trust investments chief forecast that the Targeted Equity Fund was unlikely to enjoy a repeat of this year’s returns although it will still produce positive results for investors. The Prime Income Fund, though, will “outperform” 2022 while the Secure Balanced Fund will match this year’s results. And the recovery in US markets was also likely to reverse this year’s negative returns, and make them positive, for the international funds.