Equity-based unit trusts perform

Published: Wednesday September 3, 2008

With the continued struggles of the Stock Exchange compounded with the recent failures of the popular alternative investment schemes, unit trust fund managers confidently agree that they preside over one of the most viable investment options on the market today.

By all indications, what the analysts profess is true. During the quarter ended July 2008, the industry saw a two per cent increase in the total asset value from net assets of $15.97 billion at the end of April to $16.35 billion. The four players in the market - Pan Caribbean, Scotia DBG, Capital & Credit, and Barita - are all posting year-to-date price appreciations, and double-digit 12 month growth rates on their main equity-based investment portfolios. Pan Caribbean is the leading player in the market, with a 40 per cent stake, followed by DB&G (37 per cent), Capital & Credit (14 per cent) and Barita (nine per cent).

Unit trust funds are performing creditably well while the local stock market has been sluggish, with the main index of the Exchange down by one per cent year to date. According to Brian Frazer, unit trust manager at Scotia DBG, this is testament to the fact that fund managers are very prudent in their selection process to arrive at a portfolio that maximises returns for investors.

"What we do is to try to beat the index," said Frazer. "The index is comprised of all the stocks on the market and quite honestly not all those stocks are stocks that we need to have in our portfolio."

One would have gained 15 per cent on their investment as of the end of last month if they had bought into Scotia DBG's Premium Growth fund at the beginning of this year, and a whopping 35 per cent if the investment was made a year ago.

Steven Gooden, general manager of Pan Caribbean asset management, acknowledged that investor confidence has been generally weak over the past 12 months, which he attributes to several factors such as the passing of a general election, a hurricane, fiscal concerns and inflationary concerns as it relates to rising oil and commodity prices.

However, he highlighted that many companies have nevertheless overperformed during this period, providing ample opportunity to put together a decent portfolio.

"When you are managing a unit trust, you try to more or less position the portfolio in stocks that you expect will outperform," said Gooden. "What we have found is that a lot of the companies have performed above expectations despite these challenges, led primarily by the banking sector and other companies such as Jamaica Broilers and Seprod that performed creditably."

Supporting Gooden's assessment is the fact that a Business Observer survey last week revealed that despite the current bearish conditions on the stock market, at least nine companies were trading near 52 week-highs.

Pan Caribbean's Sigma Optima unit trust portfolio has had a price appreciation of 10 per cent year to date and has a even more commendable 31 per cent growth rate over the past 12 months. According to Gooden, a major contributory factor to his company's strong performance, as well as other competitors' over the year, is the fact that most were heavily invested in Lascelles deMercado, which was sold to Trinidadian company Angostura at a massive per unit profit.

"We have always known that Lascelles had a good value proposition so we always maintained an overweight exposure to Lascelles and we saw what happened," said Gooden. "This contributed a lot to overall performance of the unit trust funds because all the unit trusts funds had a higher exposure to Lascelles deMercado when compared to the benchmark index."

DBG's Frazer added that his company also looks outside the Jamaica towards regional stock markets in order to diversify its portfolio and reduce volatility.

"We have an equities committee that meet every week, look at all these companies and utilise analysis from our research unit and pick the stocks that have long term value," said Frazer. "If you look at some of our portfolio, in addition to stocks that are listed on our exchange, we look at stocks that are listed in Barbados and Trinidad.

"When our market is taking a beating, at the same time there is probably a kick in Trinidad, and thats where the diversification comes in," he continued. "When you look at the Trinidad market and Barbados market, their stock prices is not as volatile as ours partly because they don't trade as regularly as ours so they reduce the risk of the portfolio by bringing down volatility."

Karl Lewin - managing director of Barita Unit Trusts, whose main portfolio has had a year to date per unit price appreciation of 8 per cent and over 20 per cent over the last 12 months - told the Business Observer that the flexibility which exists in handling a diversified unit trust portfolio makes it a perennial outperformer of the stock market.

"Whereas the stock market has a lot of bad stocks, and when something goes wrong with big cap stocks the entire market suffers," explained Lewin. "With the unit trust (managers) can sell a portion of their big cap stocks, move things around and come up with packages to offset the reduction in some of the stocks on the market.

"Because of this flexibility and the experience of people who are handling the fund, you find that the unit trust tends to outperform the market every time," he continued.

In fact, Lewin was quick to point out that if one had bought shares at the opening price of $1.00 each when Barita started 15 years ago, one would have gotten over an 1800 per cent return on their investment today - the unit price was $19.23 at the end of August.

"Besides the alternative investment schemes, which are no longer around, unit trust is one of the most viable investments," he emphasised.

Alternative investment schemes offered returns of some 10 per cent a month. However, since earlier this year investors have not been able to gain easy access to their money following the restructuring or fallout of these institutions.

Gooden said that the fallout in the alternative investment schemes does not necessarily mean that there will be an outflow of funds towards investment such as unit trusts.

"On one hand, what you will find is that those with money will start focusing more on the regulated type of investment but on the other hand, you have a lot of persons who were more or less burnt and may very well turn to their traditional investments for liquidity," said Gooden. "On one hand, you have increased interest for liquidity and on the other hand, you have increased interest for redemption."

It was concluded by the analysts that perhaps the greatest advantage in investing in a unit trust is the fact that it is handled by professionals who specialises in such a job as oppose to the individual investor who may not be as savvy.

"One has to realise that what you are looking at is a professionally managed portfolio, as opposed to an individual who really doesn't have the time to do the analysis and watch the market as a company that employs several professionals to manage the accounts," said Fraser.

However, this advantage that the investment tool presents is also one of the reasons that keeps many 'individualistic' Jamaican investors away from unit trusts. Both Frazer and Gooden agrees that more educating needs to be done to lure more local investors towards unit trusts.

"As an industry, I think that there is more that can be done to lure investors towards unit trust and it is something that we have discussed as a group," said Gooden. "What you find is that a lot of Jamaican investors as it relates to equities want to do it themselves as opposed to going through a unit trust investments."


Source:
Julian Richardson
Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080902T230000-0500_139767_OBS_EQUITY_BASED_UNIT_TRUSTS_PERFORM_.asp
richardsonj@jamaicaobserver.com