A leading fund manager, Fortress Fund Managers, is reporting that 2019 has been a good year for investors so far, with its equity investments holding steady and bonds showing some gains at the end of its third quarter, in spite of “a noisy summer” in the investment world which pushed markets “alternately up and down”.
This is the assessment contained in Fortress’ September 2019 Quarterly Report which was recently shared with its investors.
Investment Director, Roger Cave, said that by the end of the third quarter returns either remained steady or showed gains in spite of Brexit, political protests, economic uncertainty and US – China trade conflicts. “In spite of the noise, 2019 has actually been quite a good year for investors so far. While the third quarter was somewhat lacklustre for equities, the 2019 year-to-date returns across the range of Fortress funds are all strongly positive, including double digit percent gains within the Fortress Global Funds which make up a large part of the Fortress Caribbean Growth Fund’s underlying investment portfolio,” he explained.
The report outlines returns for three of Fortress’ funds – the Caribbean Growth Fund, the Caribbean High Interest Fund, and the Caribbean Pension Fund.
Caribbean Growth Fund up nearly 6% for 2019 despite small decline
The Caribbean Growth Fund declined by 0.5% during the third quarter and is up by 5.8% so far in 2019. The net asset value (NAV) per share, or total value of the securities the fund owns divided by the number of fund shares outstanding, finished September 27 at $6.0922. Net assets of the Fund were $488 million, up from $480 million this time last year. The Fund’s annual compound rate of return since inception in 1996 is 8.3% per year.
Jamaica remained an area of strength and the Fund’s holdings there performed well. NCB Financial Group gained 13% while PanJam and Grace Kennedy were each up 11% in the quarter. However, due to increasing concern about the relatively high valuations which have outpaced underlying fundamentals and left prices vulnerable, Fortress reduced all three of the Fund’s major positions in Jamaica, trimming them as prices rose.
The report noted better value in just about every other regional and global market, particularly Trinidad.
“Share prices there were largely unchanged in the quarter and we added to positions in Massy Group and Guardian Holdings. Valuations in some Trinidadian shares are attractive: Massy, for example, is trading on a price/earnings (PE) ratio of 10x with a dividend yield of 4%. This makes it ‘half price’ relative to major shares in Jamaica. While economic challenges remain in Trinidad, we like the low expectations embedded in today’s share prices because they reduce the risk of disappointment and increase the chance of positive surprises,” the report stated.
Barbados stocks were little changed during the quarter, with the exception of Sagicor Financial which gained 8%. The Fund added marginally to its holding in Sagicor during the quarter.
Global markets were described as volatile over the summer due to a number of economic and political challenges. However, the Fund continues to focus on well valued stocks in Europe, particularly the UK, as well as Japan and select emerging markets where single-digit PE ratios and 4% dividend yields are expected.
The fund manager also announced that in early October the Growth Fund re-opened fully to new subscriptions, meaning that investors can open a new account or add to an existing investment in any amount with a lump sum or via an automatic monthly purchase plan.
Gains in Caribbean High Interest Fund
The Caribbean High Interest Fund gained 0.8% during the third quarter and is up 2.8% over the past year. The net asset value (NAV) of the Fund’s Accumulation share finished September 27 at $1.9930, while the Distribution share finished at $1.0166. Net assets of the Fund were $137 million, up from $132 million this time last year.
Global bond prices rallied in the third quarter which benefitted the Fund’s portfolio. Returns were influenced by the fact that the U.S. Federal Reserve cut its target rate twice and U.S. Treasury 10-year yields moved down from 2.0% to 1.7%, nearing the all-time lows last seen in 2012 and 2016.
The report noted that “while 1.7% might sound like a low yield (and it is), it is worth remembering that 10-year government bonds in most of Europe, and in Japan, are still trading at negative yields.”
In Barbados, where more than half of the Fund’s portfolio is invested directly, corporate bond holdings continued to generate steady income and contribute to the overall return of the Fund. The Fund received steady monthly payments from Government of Barbados (GOB) Series F bonds. Cash levels remained relatively high at 20% of the portfolio but have now dropped by nearly half when compared to last year leading up to the GOB debt restructuring.
“As the economic healing continues, we are hopeful that corporate bond issuers will return to the market and that there will be opportunities to add more high-quality bonds to the portfolio. The Fund’s gross yield is currently 3.3%, a good estimate of its medium-term annual return potential.”
Caribbean Pension Fund records gains
The three classes of shares of the Pension Fund returned between -0.2% and +0.7% in the third quarter, gaining between 1.1% and 2.2% over the past year. Fixed income returns were also solid during the quarter and equities recorded minor changes.
In the report Fortress also took the opportunity to reiterate to investors the difference between saving and investing. “Both play a part in the magic formula for financial security: Spend a lot less than you earn and invest the rest sensibly for the long-term. ‘Saving’ is the happy result when you spend less than you earn – it’s your surplus to use in the future…. ‘Investing’ is placing money today in productive, long-term assets with the expectation of having more money earned or repaid in the future.”
Fortress concluded its report with a reminder that “even inflation of 4% per year will cut the value of your dollar in half every 14 years. Retirement savings especially need to be invested to outrun inflation. Pensions are an easy way to make this happen: your savings drop directly into well-diversified, professionally managed funds of long-term assets and, if your employer offers a match on your contributions, that means each of your contributions starts with a substantial ‘return’ right out of the gates.”
Fortress manages more than $650 million across 11 different funds with regional and global investments. In October it moved to new offices at Radley Court in Upper Collymore Rock, St. Michael.