The recently concluded second quarter produced healthy returns for funds managed by leading fund manager, Fortress Fund Managers. This comes after a difficult start to the year in financial markets.

And even as the fund manager noted that this was a time for optimism, it has reminded long-term investors that now was also time for “discernment and appropriate caution”.

This note of cautious optimism was struck in its June 2020 quarterly report shared recently with its investors.

“After a difficult start to the year, financial markets had a strong and very welcome recovery in the second quarter. The Fortress funds posted healthy returns and have continued to advance in recent weeks,” the report shared in its summary.  Though, it went on to add that Fortress’ scorecard for the year was “not yet positive overall” with the Caribbean Growth Fund showing a decline and the Caribbean High Interest Fund registering a small gain.

The June quarterly report focused on Fortress’ three Barbados dollar funds: the flagship Caribbean Growth Fund, the Caribbean High Interest Fund which focuses on income and capital preservation, and the Caribbean Pension Fund.

Growth Fund rebounds in second quarter

The Caribbean Growth Fund gained 7.5% in the second quarter with global investments recovering significantly, led by large U.S. technology companies while Caribbean shares were mostly weaker. Overall, though the fund is still down 8.9% over the past year.

The net asset value (NAV) per share finished the quarter at $5.5812. Net assets of the Fund were $462 million, down from $484 million this time last year. The Fund’s annual compound rate of return since inception in 1996 is 7.6% per year.

“The strong performance in the quarter was driven by the returns of the Fund’s global investments, while returns in Caribbean stock markets were mixed,” the report noted. It went on to add that global equity markets came back strongly in the second quarter with many countries taking steps towards opening their economies and central banks supporting markets.

Regionally, Jamaica shares registered modest gains for the quarter while Trinidad shares declined marginally and Barbados shares fared the worst. “The Fund’s position in Goddard Enterprises was affected by the lack of commercial air travel due to COVID-19, as a significant portion of the company’s revenues is tied to commercial flights. The shares fell 9.2% in the quarter. Sagicor Financial declined 17.9% during the quarter.”

In commenting on the outlook for future returns the manager noted that opportunities were not everywhere, but that they were especially constructive now on the holdings that make up the Fund’s portfolio. “The biggest pocket of outsized potential long-term returns today is in the very kinds of well-valued shares where we have focused since Fortress began in 1996.”

Caribbean High Interest Fund gains 4.2%

The Caribbean High Interest Fund gained 4.2% in the second quarter and is up 2.5% over the past year.

The net asset value (NAV) of the Fund’s Accumulation share finished at $2.0264, while the Distribution share finished at $1.0148. Net assets of the Fund were $134 million, down from $137 million this time last year. The Fund’s annual compound rate of return since inception in 2002 is 4.0% per year.

“After severe weakness in Q1, the second quarter saw corporate bond markets rally substantially as the U.S. Federal Reserve (Fed) and other central banks provided unprecedented support. After dropping its target interest rate to zero at the outset of the COVID-19 pandemic, the Fed injected trillions of dollars into the U.S. financial system, providing the liquidity needed to resume normal market functioning,” the report stated.

Fortress also took advantage of an opportunity created by businesses issuing bonds to raise capital in sectors such as the airline, cruise, entertainment resorts and department stores. “Given market sentiment many of these bond issues came with very attractive yields. We took advantage of this opportunity and added select corporate bonds to the portfolio, where we believe that the return potential of the assets more than compensates us for the risks. As spreads tightened and prices rallied meaningfully, we began trimming some positions, and expect to trim more if spreads tighten further.”

Closer to home in Barbados, Fortress added to its holdings of Government of Barbados bonds at discounts that corresponded to yields in the 7-10% range and made new investments in short-term secured deposits in Barbados. “These moves further reduced the cash position and increased the yield of the Fund.”

Importance of having portable pensions emphasised

The strong recovery in financial markets after a weak start to the year redounded positively on the three classes of shares in the Caribbean Pension Fund. The three classes of shares of the Fund gained between 4.7% and 6.8% in the second quarter. This indicates returns of between -5.8% and + 0.6% over the past year.

The report ended by reminding investors of the importance of the portability of pensions in the event of job changes and presented varied options for doing so. “Whatever you choose,” the report concluded, “remember that saving and investing for retirement is a process where every year counts and it’s important to keep at it.”

Fortress Fund Managers manages approximately $700 million across 11 different funds with regional and global investments.