Nov 2010 Financial News

Fortress’ high interest fund sees above-average return

Nov 15, 2010

A return of 6.5 per cent for the 12-month period October 1, 2009 to September 30, 2010 represents a strong result for Fortress Fund Managers Limited’s Caribbean High Interest Fund, given the fact that it slightly better the annual average of 6.2 per cent returned since its inception in 2002.

Between July and September 2010, the investment firm’s quarterly report stated that the return for that period was 2.1 per cent, which annualises to 8.4 per cent, thereby representing another strong result.

Good quality corporate debts were said to have continued to generate good returns for the Fund, as positions in Barbados Shipping & Trading Company Limited (BS&T), CL Spirits, Goddard Enterprises Limited (GEL), and Sagicor Financial Corporation performed well, throwing off steady coupon payments.

“We continue to look actively for good quality corporate debt with terms less than five years, especially in Barbados dollars, to add to the portfolio,” said Fortress officials. “The Fund’s small allocations to a group of specialist managers also performed well during the quarter and over the past year, contributing returns at an 8 to 10 per cent annual rate from investments in a range of areas including structured credit, factoring and emerging market debt.”

Despite the achievement of an above-average rate of return, the report stated that given the conservative positioning of the fund and the relatively low level of prevailing interest rates, it is being suggested that future returns may tend to be lower.

It explained that the average yield of the Fund’s holdings currently stands at just over five per cent, with the average term to maturity being 2.6 years.

As it relates to interest rates, the report made the point that most markets around the world moved even lower in recent months, and in some cases, yields on government securities are back down to crisis levels.

One such example is the yield on the US 10-year treasury, which ended the quarter under review at 2.5 per cent, which is nothing to shout about considering that inflation is running at one per cent.

In taking a look at the Caribbean, it was noted that the majority of the economies continue to feel pressure from reduced tourism, remittances, and international finance activity.

“In this environment, foreign exchange is less readily available and governments struggle to keep expenditures within sight of revenues. We feel the risk of further downgrades and/or restructurings in the region (for example Jamaica) is meaningful,” said Fortress officials.

They made the argument that this risk is not reflected in the current yields quoted for Government instruments, therefore they continue to have very limited holdings in long-term Caribbean government debt.

“Instead, we have been steady buyers of Government of Barbados treasury bills, sacrificing some running yield in the portfolio for the relative safety that is asso-ciated with a very short (90-day) investment,” the report said.


Source:
By Randy Howard
Barbados Advocate
Monday November 15, 2010

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