The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalFidelity’s flagship $10 million mutual fund has seen redemption requests “slow down considerably” in recent months, a senior executive yesterday telling Tribune Business there were numerous ongoing projects that would see “the rubber hit the road” on equities market recovery.

Joseph Euteneuer, the Bahamian merchant bank’s mutual funds manager, told Tribune Business that the employment ‘trickle down’ effect from developments such as Baha Mar and the $409.5 million Lynden Pindling International Airport (LPIA) projects would also boost investor sentiment towards listed stocks.

The news is better, though, for RoyalFidelity’s fixed income mutual fund, the Prime Income Fund, which has seen a 69 per cent increase in assets under management since April 2012.

Mr Euteneuer added that the low bank deposit rates were a “really fantastic thing” for Bahamian capital markets development, as they were forcing investors to consider other options.

But RoyalFidelity’s flagship Bahamas Growth and Income Fund, which is now down to “just over $10 million” in assets under management, having peaked at around $40-$50 million in pre-recession years, has been hit hard by the recession and stock market downturn.

Since September 2008, the fund’s net asset value (NAV) has dropped from more than $3.5 to $2.36 at end-March 2012, with the latter figure representing a 10.1 per cent year-over-year decline.

“There’s not been a great deal of new interest,” Mr Euteneuer told Tribune Business of investor sentiment towards the Growth & Income Fund, and the equities market in general.

“But redemptions have slowed considerably. It’s a much more manageable level than we’ve had in the past. Suffice to say, they’ve definitely slowed.”

Yet, with hope springing eternal, Mr Euteneuer said: “Being an optimist, you look forward and try and identify certain things in the country that will be beneficial to an equities market in general. There are a lot of them in the Bahamas that will be beneficial.”

Describing the $2.6 billion Baha Mar project and LPIA redevelopment as two key factors, Mr Euteneuer said the Growth and Income Fund had been faced with an illiquid equities market and general decline in Bahamas International Securities Exchange (BISX) listed prices - factors impossible to overcome.

“The Growth and Income Fund is an equities fund, and it can bounce back rather quickly,” Mr Euteneuer said. “It only takes a small bump up in share prices or dividends for the Fund to grow substantially. We’ve seen that a couple of times.”

During the 2012 first quarter, the Growth and Income Fund was aided by extraordinary dividend payments by Doctor’s Hospital and Commonwealth Bank.

And the RoyalFidelity funds manager added: “Once the market begins to pick up, and people see some gains to performance and that things are happening, it becomes a self-fulfilling prophecy and we will see subscriptions on a substantially higher level. It definitely looks a lot more promising going forward.”

As for RoyalFidelity’s Prime Income Fund, Mr Euteneuer said interest continued to grow.

While Bahamian government bond issues were dominating the fixed income market, he called for higher return-yielding products, particularly preference shares and bond markets, to come to market and whet investor appetites.

“We need to have more issues activity in the market as a whole,” Mr Euteneuer told Tribune Business. “We’re trying to get a higher bump than what the Government is providing, and has to come from private and quasi-governmental issues.”

The strong demand for fixed income securities had been further exposed by the recent surge in subscriptions to RoyalFidelity’s Prime Income Fund, which had seen its assets under management increase from $17 million in April 2012 to $28.7 million at end-July - a 69 per cent rise in three months.

Mr Euteneuer said the growth had been driven by the low bank deposit interest rate environment, which had “gently nudged” Bahamian investors “out of their comfort zone” to look at other forms of fixed income investments.

“People have to learn about where they are on the risk continuum, and give themselves a chance of a higher return. People have a sum of money and can’t deal with 2 per cent,” Mr Euteneuer explained.

“It’s a really fantastic thing for the markets in general in the long run, as people are becoming more aware about investment options in general.”