The fourth quarter of 2022 was “a period of strength” for the three Barbados dollar funds managed by Fortress Fund Managers in an otherwise difficult year for financial markets.
This assessment was made in the leading fund manager’s December 2022 quarterly report for the Fortress Caribbean Growth Fund, the Fortress Caribbean High Interest Fund, and the Fortress Caribbean Pension Fund. The report highlighted the funds’ performance and outlook.
“The Fortress funds all posted solid gains for the quarter, but still finished the year in negative territory. Fortunately, our consistent focus on high-quality, well-valued investments helped the funds during the rough patches of the year and served us well in the fourth quarter as well,” the report said.
Caribbean Growth Fund gains 7.2% in fourth quarter
The Fortress Caribbean Growth Fund gained 7.2% in the fourth quarter though it was down 5.7% over the past year. The net asset value (NAV), or price of each share, as of December 30 was $7.0523. The Fund’s net assets were $605 million, down from $629 million this time last year.
Gains were helped by a recovery in global equities in the fourth quarter, which rallied as inflation finally showed signs of moderating and fears of deep economic damage receded. “As the U.S. Federal Reserve continued raising its target rate, bringing it to a range of 4.25-4.5% by the end of the quarter, governors softened their language about the pace of future hikes,” the quarterly report explained.
Global equities rallied to end the year, and major currencies gained against the U.S. dollar. “This meant international equities saw the strongest gains, and the Fund benefited from its broad global diversification. It also benefited from its focus on high-quality, well-valued shares as the more speculative parts of the market continued to correct lower.” The Fund’s core allocations to the Fortress Global Funds contributed gains of between 10% and 14% during the quarter.
Performance in the Caribbean, however, was more mixed. “In Barbados, Goddard Enterprises gained 4% while most other holdings were flat for the quarter. In Trinidad, Guardian Holdings and Agostini saw noteworthy gains of 8% and 11% respectively, while Massy Holdings traded 5% lower. The Fund’s holdings in Jamaica mostly traded lower during the quarter, and Sagicor Financial, listed in Canada, was down 10%. Guyana shares, which provided outsized gains earlier in the year, were mostly unchanged on thin trading volumes.” During the quarter, Fortress added small amounts to the Fund’s positions in Guardian Holdings and FirstCaribbean International Bank.
The report on the Caribbean Growth Fund concluded by saying that while 2022 was a difficult time for equity investors, many of the challenges experienced were “being overcome”.
The Fund’s annual compound rate of return since inception in 1996 was 7.8% per year and its portfolio remained well diversified by security, geography, and currency.
High Interest Fund gains 1.8% in the fourth quarter
The Fortress Caribbean High Interest Fund gained 1.8% in the fourth quarter and was down 2.6% over the past year.
Global bonds “edged higher” over the quarter, contributing positive returns from the portion of the portfolio that was invested overseas. “The Fund’s US$ bond investments, primarily via the Fortress Fixed Income Fund, gained 2.2% over the quarter as more than half of that portfolio is allocated to high-quality corporate bonds. This performance was ahead of the benchmark gain of 1.9%. The Fund’s Emerging Market bond positions gained 6-7% and contributed nicely to overall returns.”
Closer to home, the bond market in Barbados was quiet over the quarter with no new issues of note. The Fund’s existing positions continued to perform well, but higher than desired cash remained a drag on overall portfolio performance. The average gross yield of the portfolio was 3.8%, healthier than it had been in some time, and a good indicator of the Fund’s medium-term return potential.
The NAV of the Fund’s Accumulation share as of December 30 was $2.0752, while the Distribution share finished at $0.9907. Net assets of the Fund were $144 million, up from $143 million this time last year. The Fund’s annual compound rate of return since inception in 2002 was 3.6% per year. Its portfolio remained as diversified as possible across various issuers, industries, geographies, and terms to maturity.
Caribbean Pension Fund returns up to 6.3% across its shares
The three classes of shares of the Fortress Caribbean Pension Fund returned between 2.2% and 6.3% in the fourth quarter and were down between 2.9% and 4.8% over the past year. Stocks and corporate bonds recovered as inflation eased and hopes grew that aggressive central bank rate hikes were nearly over.
Speaking to Fortress’ pension investors about inflation, the report noted that while it might be a little higher in this decade than it was in the last, it was unlikely to stay anywhere near what it was in the last year or two. “The good news for long-term savers is that higher interest rates in 2022 led to a drop in stock and bond prices around the world. These lower asset prices today translate directly into higher yields and return prospects for the years to come. And investing steadily in long-term assets like stocks and bonds is the best way to outrun more normal levels of inflation, and to build long-term financial security with your pension investments.”
Fortress manages over Bds $800 million in assets across 12 funds with investments in regional, US, international and emerging markets.