Feb 2010 Financial News

Last quarter improves year for Fortress fund

Feb 22, 2010

A fourth quarter return of 1.44 per cent has resulted in the Caribbean High Interest Fund managed by Fortress Fund Managers Limited ending the year with an overall return that was better than previously expected.

According to the company’s quarterly report for the period October to December of last year, the Fund ended the year up 4.26 per cent, which is an improved result from earlier in the year, however, it was still behind the Fund’s annual compound return of 6.1 per cent, which it has been achieving since inception.

The report noted that during the three-month period, US dollar deposit rates remained near zero, as did rates in most developed countries.

It also noted that Central Banks around the world kept rates unusually low to stimulate growth, and that government stimulus packages also supported demand.

On the other hand, Bond investors were seen to have focused on the future effects of such a long period of extremely stimulative policies.

It was argued that while the huge debts incurred by governments will likely lead to inflation eventually, it is still unclear when that may be; however, in the short term, developed economies seem to have enough excess capacity and hangover from the banking crises to keep inflation relatively low.

As a result, it is expected that rates may stay low for sometime, even though the risks of higher rates remain.

On the regional front, the report noted that Caribbean bond prices remained stable even as many governments struggled with the financial remains of the global economic slowdown.

The point was made that Standard and Poor’s downgrade of the credit rating of the Barbados Government in October of last year brought this to its lowest level, however, as this is still considered “investment grade”, the markets “took this announcement in stride”, with the view that Barbados is still one of the stronger credits in the region.

On the other hand, the report pointed to the situation in Jamaica, where that Government restructured its debt but effectively defaulting on its local debt, and asked lenders to accept new terms on their bonds with reduced coupon rates and longer terms to maturity.

It was stated that from an investment point of view, the good news is that the creditworthiness of Jamaica’s external US dollar debt has now improved slightly, and Fortress believes that at yields of 11 per cent, this offers reasonably good value.

Therefore, subsequent to the debt restructuring process, the company has purchased an initial position in some of the above-mentioned bonds.

The situation that developed in Jamaica is something that Fortress is concerned about however, as they are keeping their eyes opened for similar developments in other territories.

“We are concerned other countries may encounter similar difficulties, and that the tide has not turned on the pressures threatening their creditworthiness,” the report stated.

Taking this into consideration, Fortress continues to limit the Fund’s exposure to long-term regional government treasury bills for a substantial portion of the portfolio.

“We are also keeping the average term to maturity of the Fund’s holdings relatively short to insulate the Funds from losses in case global rates begin to rise,” the company said.

As it relates to their investments in private entities, the Fund holds positions in short-term bonds issued by high quality regional corporations.

The report stated that most of these are performing well and are generating significant yields for the portfolio, however, it also noted that not all issuers have withstood the economic slowdown easily.


Source:
Randy Howard
Barbados Advocate
February 22, 2010

http://www.barbadosadvocate.com/newsitem.asp?more=business&NewsID=9100