Fortress funds achieve ‘substantial recovery’ after turbulent 2020 for financial markets
Fortress Fund Managers has recorded “substantial recovery” across its funds since the decline in financial markets in early 2020 prompted by the COVID-19 pandemic. And the leading fund manager believes that there are still “great long term investments to make”.
In the first quarter of 2021 the fund manager reported that this recovery could be seen in the one-year returns for its three Barbados dollar funds: the flagship Caribbean Growth Fund; the Caribbean High Interest Fund, which concentrates on income and capital preservation; and the Caribbean Pension Fund.
This news was shared recently with Fortress investors in its March 2021 quarterly report.
Nearly 30% gain for Caribbean Growth Fund over past year
The Caribbean Growth Fund gained 6.0% in the first quarter and was up 29.4% over the past year. The Fund’s global investments added to the “substantial gains” while regional Caribbean shares had lacklustre returns. “Against this backdrop, though, most of the Fund’s larger Caribbean positions held their value or even posted gains,” the report noted.
On the global front, markets kicked off 2021 on a stronger note. This was supported by progress on vaccination rollouts and continued recovery in major economies. “The kinds of high-quality well-valued shares in which the Fund invests had a particularly strong quarter, adding to returns in the nearly three-quarters of the Fund that is invested globally.”
Looking ahead against the background of higher interest rates and signs of speculation in certain areas of the financial market, Fortress expects that investing selectively will be more and more essential. “Based on today’s valuations, the outlook specifically for the kinds of well-valued shares in which the Caribbean Growth Fund invests remains positive for the years ahead, even as the prospects for some of the most highly valued areas of the market are not as rosy.”
The Fund’s net asset value (NAV) per share as of April 1 was $6.7199. Net assets were $549 million. This was up from $427 million this time last year. The Fund’s annual compound rate of return since its inception in 1996 is 8.2% per year.
High Interest Fund achieves nearly 8% increase over the past year
The Caribbean High Interest Fund declined 0.4% in the first quarter but was up 7.7% over the past year.
The report explained that while there was little activity in the local Barbados bond market, the global recovery from the pandemic continued during the quarter, and bond yields also rose from extremely low levels. “U.S. 10-year Treasury yields rose from 0.9% to 1.7% during the quarter, reaching pre-pandemic levels. This adjustment pushed bond prices somewhat lower for many of the Fund’s global holdings (just under half of the total portfolio), although yields looking forward from here will now be higher as a result. This is a natural process of normalising from a decidedly abnormal time over the last year.”
During the quarter Fortress took the opportunity to invest in select high yield and investment grade corporate bonds with maturities in the five-to-seven-year range, at higher rates. “This nudged up the portfolio’s average yield and term to maturity.”
The NAV of the Fund’s Accumulation share as of April 1 was $2.0942, while the Distribution share finished at $0.9998 after declaring a dividend of $0.0196 per share. Net assets of the Fund were $136 million, up from $128 million this time last year. The High Interest Fund’s annual compound rate of return since inception in 2002 is 4.0% per year. The Fund’s gross yield was 3.3%, up from 3.1% last quarter, and a “good estimate of the medium-term return potential”.
Caribbean Pension Fund continues to make gains
The three classes of shares of the Pension Fund gained between 0.5% and 3.9% in the first quarter. They were up between 10.6% and 23.9% over the past year as equity investments continued to see a recovery from the previous lows.
Fortress noted that since launching its first mutual fund nearly 25 years ago, every $1 invested had grown to more than $6.70. “And for those who have been investing and saving for retirement steadily each month it has grown to many, many times that. None of this growth has occurred in a straight line, though, because investing for the long-term always involves living through ‘real life’ along the way.”
The fund manager recalled that it had invested steadily through more than a few downturns. “The technology crash of 2000, the financial crisis in 2008/2009, the European banking crisis in 2011, the Government of Barbados debt restructuring in 2018, and most recently the COVID-19 market panic and disruptions of 2020 – some of which are still with us today. Through all these episodes (and more) there have been ups and downs. We have seen stock markets decline and then recover, over and over.”
This was a great reminder for investors, Fortress said, “that after one time always comes another. If there’s one thing we’ve learned over the last 25 years, it’s that investing for the long-term pays.”
The quarterly report concluded by noting that: “In the Caribbean, and around the world, we continue to invest in a disciplined way for the long-term, and we still see considerable return potential ahead.”
Fortress Fund Managers manages approximately $700 million across 11 different funds with regional and global investments.