Sustainable recovery underway despite challenging year, Fortress reports
In a year described as “challenging” and “volatile” with “mixed returns” in some funds, Fortress Fund Managers (FFM) has generated solid returns for investors.
Investment Director Roger Cave made this assessment in the leading fund manager’s 2020 Annual Reports for the Fortress Caribbean High Interest Fund, the Fortress Caribbean Growth Fund, and the Fortress Caribbean Pension Fund. The reports, for the year ended September 30, 2020, were disseminated to investors recently and highlighted the performance and outlook of the three funds.
High Interest Fund generates “solid return”
Describing the financial markets this year as “volatile” for the Fortress Caribbean High Interest Fund, with low interest rates, Cave said that it still generated a solid return. It returned 2.8% for the year as “global bond prices rose significantly and more of the Fund’s Barbados dollar cash was put to work earning higher returns.”
The report also noted that “the net asset value (NAV) of the Accumulation shares increased from $1.9975 at September 30, 2019 to $2.0532 at September 30, 2020, while the Distribution shares moved from $1.0189 to $1.0283 after paying a dividend of $0.0188 per share.” Total assets decreased from $137 million to $133 million and the Fund’s compound annual return since inception in 2002 is now 4.0% per year.
Cave reminded investors that the High Interest Fund remained open for subscriptions from monthly savings programmes, registered retirement savings plans (RRSPs) and pension plans. It is still closed to new lump-sum subscriptions.
Regarding the outlook for the High Interest Fund, Cave said that the average yield on the Fund’s portfolio was about 3.5%. “We expect this to rise marginally in the months ahead as more low-yielding cash is profitably deployed. But there are limits to what can be accomplished given the challenges of the current environment, both in the Caribbean and abroad.” The investment director suggested that investors should continue to expect “lower than historic returns in the range of 2.5-3% per year for the foreseeable future.”
The Fund’s investment objective is to generate the highest level of income consistent with preserving capital.
Growth Fund holds up “relatively well” in a challenging year
On the Fortress Caribbean Growth Fund, Cave said that it experienced a “challenging year”, but “our portfolio held up relatively well and a sustainable recovery appears to be well underway.”
The Fund declined 7% for the year ended September 30, 2020 as its Caribbean and global investments felt the pressure of the COVID-19 pandemic on business and financial markets. The net asset value (NAV) of the Fund declined to $5.6813 as of September 30 from $6.1110 the same time last year.
The Fund’s net assets were $466.4 million, down from $492 million in 2019. This decline was due to the Fund’s investment performance as there were subscriptions into the Fund during the year. “We were gratified to see so many investors adding new money in such a volatile and uncertain time, because lower prices today typically lead to higher returns in the future,” the investor director explained.
The Fund’s annual compound rate of return since inception in 1996 is now 7.6% with “none of that accomplished in a straight line.”
“Our research shows that many good companies around the world have steady and growing earnings but still have been left behind in this technology-driven rally. We believe this presents a significant opportunity going forward and the Fund is well positioned to benefit from this sub-set of the global equity markets.”
The Fund’s portfolio is diversified within the Caribbean region and globally, across a range of industries, countries, and individual holdings.
Approximately one third of the portfolio is invested in the Caribbean region and two-thirds is invested in U.S., international and emerging markets.”
The Growth Fund remains open to lump sum subscriptions of all kinds.
“Mixed returns” for Caribbean Pension Fund
The Fortress Caribbean Pension Fund had mixed returns for its three classes of shares.
The Aggressive Accumulator (AA) share was down 4.2%, the Conservative Consolidator (CC) share declined 3.2% and the Capital Secure (CS) share was up 1.2%. Cave explained that “these returns reflect the differing asset allocations of the classes of share in a year when equities mostly fell, and bonds posted positive returns.”
The report also noted that, “since inception in 2002, the annual compound returns for the AA, CC and CS shares have been 5.1%, 4.9% and 3.4% per year respectively with negative years like this being rare and typically followed by higher returns in subsequent years.”
Cave reiterated FFM’s call for a reinstatement of tax breaks for RRSPs. “We remain extremely concerned that due to tax changes in recent years individuals’ contributions to registered pension plans are still potentially subject to double taxation: once as they are earned and again when they are paid out from the plan as an annuity or income drawdown. This is an important situation to fix.”
The investment director added that Fortress understood that there were financial pressures on the government especially after COVID-19. “At the same time, it is critical to the long-term financial health of the country to encourage and enable (or, at a minimum, not discourage) persons to save and invest for their own financial security in retirement.”
Cave ended the annual reports by expressing appreciation to investors, team members, business partners and suppliers for their support and adaptability during the lockdown.
Fortress Fund Managers manages approximately $700 million across 11 different funds with regional and global investments.