The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalFidelity Merchant Bank & Trust yesterday said it had used ‘mergers’ to increase the asset bases of its two oldest mutual funds by $8 million apiece, adding that a net $1 million subscriptions inflow into its equities fund indicated renewed demand for listed stocks.

Joseph Euteneuer, the investment bank’s mutual fund manager, said merging other securities RoyalFidelity managed into the portfolios of the Prime Income Fund and Targeted Equity Fund, respectively, had increased their assets under management to $40 million and $18 million.

And Mr Euteneuer told Tribune Business that the Targeted Equity Fund, the renamed Growth & Income Fund, had seen a $1 million net subscriptions inflow over the past three-four months, as investors sought higher returns to compensate for depressed bank deposit rates.

“We’ve managed to pool some assets in the Targeted Equity Fund, merging its securities with other securities we manage to increase the asset base,” Mr Euteneuer told this newspaper.

“We managed to increase the asset base by about $8 million to $18 million. The objective of the fund itself has not changed; it’s still an equity fund.”

And the RoyalFidelity executive added: “The Prime Income Fund, on the other hand, retained its name, but we also merged some fixed income securities with that portfolio.

“It’s up to about $40 million. It would previously have had $31-$32 million in assets under management, so it received about another $8 million in securities. The objective has not changed, it’s still a fixed income fund.”

Mr Euteneuer, meanwhile, said increased investor demand for equities - and the Targeted Equity Fund - had followed an improvement in the performance of many BISX-listed stocks over the past six months.

“We have definitely seen positive inflows for the last three-four months,” Mr Euteneuer told Tribune Business of the Targeted Equity Fund.

“You’re probably talking about $1 million over those four months, which is not bad all things considered.”

He attributed the increased demand for equities to two things: Smart investors realising that stock prices had likely bottomed, and now was the time to obtain extra value by getting in while prices were low, and others searching for higher, alternative returns due to the low interest rate environment that was impacting both bank deposits and returns on fixed income securities.

The RoyalFidelity executive explained that the Targeted Equity Fund’s renaming was part of a broader late 2012 restructuring of its Bahamian dollar-denominated mutual fund portfolio into an ‘umbrella structure’, which also involved the launching of a third, new fund - the Secure Balanced Fund (see other article on Page 1B).

Mr Euteneuer said this had resulted from an “across the board” review of RoyalFidelity’s mutual fund business, and a desire to align its Bahamian dollar funds with the ‘funds of funds’ structure employed for their international TIGRS counterparts.

He explained that RoyalFidelity’s TIGRS funds and international equities sub-fund were set up under an “umbrella structure”, where they were all share classes under the RoyalFidelity Bahamas International Investment Fund.

This structure was established to enable RoyalFidelity to take advantage of the Central Bank of the Bahamas’ exchange control liberalisation programme, which permitted licensed/broker dealers to set up US dollar mutual funds and give Bahamian investors access to international capital markets.

“As we went along creating funds structures, this was understood clearly and provided the most flexibility we could find,” Mr Euteneuer said. “It worked well from a structure standpoint, a flexibility standpoint, and an understanding standpoint - it all makes sense to me.

“We decided to do two things. One was to make the structures consistent with each other across our organisation, which meant we had to reorganise the two standalone structures we had - the former Growth and Income Fund and the Prime Income Fund.

“The second thing we wanted to add was another fund, which would be a balanced option for investors - the Secure Balanced Fund. We were trying to do it all at the same time; to create the umbrella structure to incorporate three new entities as share classes under this structure.”

Mr Euteneuer added that both the Prime Income and Targeted Equity funds had “been doing well”.

The former was set to continue delivering returns to Bahamian investors on “a slow and steady basis”, producing “40 basis points” returns for both November and December.

Mr Euteneuer said the Prime Income Fund would continue to snap up any new fixed income securities that came on to the market, such as the recent $32 million Grand Bahama Power Company issue and the upcoming $43 million preference share placement by Arawak Port Development (APD), the container port operator.

As for the Targeted Equity Fund, while it had suffered a 0.7 basis point decline in November, Mr Euteneuer said it had generated a 2.28 per cent positive return in December.