The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalFidelity Merchant Bank & Trust is aiming to grow its newly-launched mutual fund to $10-$15 million in assets under management by year-end, telling Tribune Business yesterday this would be the “sales highlight for 2013”.

Joseph Euteneuer, RoyalFidelity’s mutual fund manager, told Tribune Business that the investment bank’s Secure Balanced Fund could ultimately grow to match, or be “a little less”, than its existing $40 million Prime Income fund once marketing efforts ramped up.

He explained that the Secure Balanced Fund, launched quietly in November 2012 as RoyalFidelity’s third Bahamian dollar mutual fund, would have an investment strategy split 60/40 between fixed income and equity securities in a “nod to the realities of the marketplace”.

Intended to fall between RoyalFidelity’s existing Prime Income and Targeted Equity mutual funds, Mr Euteneuer said the Secure Balanced strategy aimed to match the natural ‘security’ preference of risk averse Bahamian retail investors with the upside still present in equity securities.

Disclosing that RoyalFidelity planned to soon launch a dedicated mutual fund website, which would explain what the Secure Balanced Fund was and its investment strategy, Mr Euteneuer acknowledged that it would “take a while to attract investors” to it.

“Quite frankly, we were more intent on making sure the transition happened,” he told Tribune Business, in a reference to RoyalFidelity’s restructuring of its domestic mutual fund portfolio (see other article on Page 1B).

“It was a big job, with lots of moving parts, and we were less focused on attracting investors to it up until the New Year. Our objective in 2013 is to market it [the Secure Balanced Fund] much more fully.

“I’m confident that it’s going to be a highlight of our fund sales for 2013. I think if we can manage to get in that $10-$15 million range for the first year, I’ll be satisfied.

“I would expect it to grow at least to what the Prime Income fund is, at least $40 million, maybe a little less.”

Mr Euteneuer told Tribune Business that he expected the Prime Income fund, which invests in fixed income instruments such as preference shares, bonds and bank deposits, to remain the most popular with Bahamian investors and attract the greatest allocation of investment assets.

He attributed this to the capital markets’ generally risk averse nature, and the preference of Bahamian investors for safety in the form of guaranteed interest returns on their investment.

The Secure Balanced Fund, he predicted, with its mixed investment allocation was likely to attract the second highest volume of investment assets, with the Targeted Equity Fund (the renamed Growth and Income Fund) coming in last “but not the least important”.

Explaining the rationale behind the Secure Balanced Fund, Mr Euteneuer told this newspaper that it provided “a more common sense, balanced approach”, especially given the four-five year downturn suffered by the Bahamian equities market.

“The investment allocation objective is 60 per cent to fixed income investments, and 40 per cent to equities,” he added. “That’s a reflection of the realities of our market without completely abandoning equities.

“For a long period of time, retail investors in the Bahamas have been offered only equity funds or fixed income funds.

“Experience shows that investors do not like the idea of all eggs in one basket; they’d like some eggs in this equities basket, and some eggs in this fixed income basket.”

Mr Euteneuer told Tribune Business that the Secure Balanced Fund’s ‘40 per cent equities’ allocation was “a nod to the fact there is still some value to be had in the equities market”.

Yet he acknowledged that traditional Bahamian investor appetites, plus the need for pension funds and insurance companies to match long-term assets (and returns) with liabilities, meant fixed income offerings such as Grand Bahama Power Company’s $32 million preference share issue were always likely to be oversubscribed.

“We have a huge appetite for fixed income investments, and this 60/40 allocation of the Secure Balanced Fund is also a nod to that,” Mr Euteneuer said.

He added that RoyalFidelity’s focus on launching the Secure Balanced Fund, plus bedding down the new structure for its Bahamian dollar-denominated mutual funds, meant any new international fund offerings were not in the immediate future.”

“I think we’re going to continue to hold off on that,” Mr Euteneuer told Tribune Business on further additions to its TIGRS fund family.

“It [the Secure Balanced fund] is a new, open-ended fund, and we will continue to market it. There’s no reason why we need to focus elsewhere, and will continue to raise assets for that and invest them.

“That’s where our focus is going to be. I don’t see us, after a restructuring exercise which was quite extensive and exhaustive, doing anything else. We want to focus on new funds, steadily increasing assets and managing them for the benefit of our shareholders.”