The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalFidelity has seen withdrawals from its investment funds “double, sometimes treble” above normal levels in recent months after Hurricane Matthew sent investors scrambling for funds to effect repairs.

Joseph Euteneuer, the investment bank’s mutual fund manager, yesterday told Tribune Business that the storm, combined with election uncertainty and sliding share prices for the funds’ key holdings, had all impacted 2017 first quarter performance.

He revealed that RoyalFidelity’s Targeted Equity Fund, which focuses on equity investments in listed companies, had produced a negative -2.81 per cent return through to end-March 2017.

Its Secure Balanced Fund, featuring a mixed equity/fixed income investment portfolio, had generated a negative -3.4 per cent return for the same period, although its Prime Income Fund was up 1.09 per cent.

Mr Euteneuer, though, emphasised that the year-to-date performance of RoyalFidelity’s investment fund family “shouldn’t alarm investors at all”, provided they were looking at long-term returns rather than short-term gain.

He added that subscriptions (incoming investments) were starting to “balance off” the redemptions experienced post-Matthew, and expressed optimism that the funds would enjoy “modest growth in assets” for 2017.

“One of the factors that has definitely affected the funds is the number of redemptions people have taken due to the hurricane,” Mr Euteneuer told Tribune Business of the funds’ performance.

“A lot of people had to tap into their savings to fix roofs and other things because of hurricane damage. Redemptions were definitely above normal, starting in November/December, and going through January and February.”

He added: “The redemptions had at least doubled, sometimes trebled, given any given month, although not consistently.

“Some people sustained large damages, and we had redemptions that were quite big. We were able to accommodate damages claims, people wanting to make redemptions for hurricane damage reasons, and assisted them by lowering fees. You have to do that stuff when natural disasters strike.”

Matthew’s impact on RoyalFidelity’s mutual funds shows how wide-ranging, and deep, the Category Three/Four storm’s impact was for the Bahamian economy, with investors forced to liquidate investment holdings to finance repairs and recovery.

“It’s beginning to taper off,” Mr Euteneuer said of the Matthew-related withdrawal requests. “We’re starting to get subscriptions to a degree that is balancing off redemptions.

“We’re down to where redemptions are less likely due to hurricane damage, and are now down to uncertainties over the election.”

The RoyalFidelity manager underscored how Bahamian capital market activity, and local investor sentiment, is now being impacted by the traditional ‘wait and see’ attitude that takes hold prior to a general election.

Investors and businesses typically hold off on initiating new projects and activities until the new administration is elected, and they get a sense of its policy priorities and direction.

“We’re always looking for opportunities, trying to make things happen, but especially in an election year, it’s very difficult for anything to happen until that contest is decided,” Mr Euteneuer told Tribune Business.

“When you have uncertainty, investors tend to clamp down and don’t do anything. You don’t see much growth until after the election, net growth in the funds, but we’ll see. It’s a real indication of people’s current uncertainty. We can see it, we can feel it.

“It’s not that individual investors don’t want to invest in the funds, it’s that they don’t want to invest right now because of uncertainty.”

Mr Euteneuer said the performance of both the Targeted Equity Fund and Secure Balanced Fund had also been impacted by the declining share prices of key BISX-listed stocks that they hold.

He singled out Cable Bahamas, whose share price has declined 19.46 per cent year-to-date, and FINCO, which is down more than 10 per cent over the same period, as the main culprits. Commonwealth Brewery, tool, is down by 10 per cent.

Cable Bahamas has incurred two consecutive years of losses, as it waits for its investments in Aliv, the second mobile operator, and $100 million Florida expansion to payoff.

FINCO, Royal Bank of Canada’s (RBC) mortgage arm, has seen its profitability hit by a more than-$100 million non-performing loan portfolio - a problem exacerbated by Hurricane Matthew.

“In such a limited marketplace, funds such as the mutual funds have a natural level of concentration in certain stocks, as there’s not a lot to choose from,” Mr Euteneuer told Tribune Business.

“We are somewhat dependent on the performance of those stocks, Cable being the main one in our portfolio. We have definitely taken some knocks from Cable, and to a degree FINCO, and until and unless those stocks rebound, or at least stop dropping, there’s not a lot you can do in an illiquid market to stop the decline.”

Mr Euteneuer added that past annual returns had raised investor expectations regarding RoyalFidelity’s investment funds, pointing out that the 19 per cent return generated by the Targeted Equity Fund in 2015 was “unsustainable” year in, year out.

Its returns fell to a more typical 4.58 per cent for the 2016 full-year, and he emphasised the need for Bahamian investors to avoid being distracted, or deterred, by short-term events.

“If you look down the road and maintain a long-term objective, this shouldn’t really alarm you at all,” Mr Euteneuer said of the present investment climate.

“We tell investors on a regular basis that you’re not trading in and out of these things. These funds are established for the long-term, and if you don’t have a horizon of at least five years, these may not be the correct vehicle for you.”