Over the past four months, thousands of citizens are facing a decline in their net worth from the slide in the value of mutual funds in the country.
This is due to COVID-19’s impact on local and international markets. According to the data disclosed by the T&T Securities and Exchange Commission (TTSEC) the value of assets in January, 2020 amounted $56.03 billion, going to as low as $53.98 billion in March 2020.
As at May 2020 (according to the latest information by the TTSEC) the value of the assets held in mutual funds operating out of the T&T market was valued at $55.41 billion.
The TTSEC data indicates that on average, the value of assets in mutual funds declined by 0.28 per cent per month from January 2020, to May 2020.
In a their writing on portfolio management, Owen Concannon, Robert Conroy, Alistair Byrne, and Vahan Janjigian claim that a common challenge faced by all investors is to find the right set of investment products to meet their needs.
The authors noted that there is a diverse set of investment products available to investors, ranging from a simple brokerage account in which an individual creates their own portfolio by assembling individual shares of companies, to large institutions that employ individual portfolio managers to meet clients’ investment management needs.
Concannon et al posited that individual investors and institutions could turn over the selection and management of their investment portfolio to a third party through a mutual fund, rather than assemble a portfolio on their own.
They explained that a mutual fund “is a comingled investment pool” in which investors in the fund each have a proportionate claim on the income and value of the fund. The value of a mutual fund is referred to as the “net asset value,” which is calculated daily based on the closing price of the securities (equities or bonds) in the portfolio.
According to the International Investment Funds Association, worldwide regulated mutual fund assets totalled US$47.94 trillion as of the first quarter of 2020, down from US $54.88 trillion, which represents a 12.6 per cent drop in value.
Even Prime Minister Dr Keith Rowley recognised a fall in his net worth as a result of a slide in his mutual fund holdings.
Rowley told a recent news conference: “So if you ask me how much I was worth in January and I told you, on those accounts I am 40 per cent down now, having not done a thing except being a victim of international conditions.”
Rowley said: “Now I’m not getting any younger so I don’t have the opportunity to save all over again. So I have to just hold the fort and hope that the markets turn around. And I hope to see that over time these mutual funds would have better value.”
He explained that the asset value in the international market had fallen because of market conditions.
So much uncertainty had hit the international markets over the past five months, that it caused the Unit Trust Corporation to exit some of its positions.
In the UTC’s virtual AGM and subsequent Q&A segment, its executive director Nigel Edwards noted that mid-march UTC had taken a decision to withdraw from its US equity holdings.
He said that this was done after the US market had already retreated by about 10 per cent. He acknowledged that the UTC had to take some losses on that portfolio.
UTC is the largest mutual fund company in the English-speaking Caribbean with over US$3 billion in assets under management and 617,591 individual and institutional investors.
Edwards also mentioned that he shared with the public, that for the first quarter of 2020, the total change in fair value of assets was negative $508 million.
According to Edwards, UTC’s investments in companies, such as Facebook, Apple, Procter & Gamble, Delta, and Halliburton, had at some point experienced price fluctuations and in some instances major reversals in their fair value.
He said that the corporation took the proactive steps in March to exit many of its investments in international equities to protect unit holders from further loss.
Responding to questions by the Business Guardian, UTC indicated that within the mutual fund industry there are different outlooks.
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It said: “For mutual funds with an equity or stock bias, we see heightened uncertainties, both volatility and opportunities continue to characterize the global, regional, and local capital markets thus significantly influencing the performance of equity based mutual funds.”
On the other hand, UTC noted that fixed income mutual funds have maintained their values and have performed their core function of giving stability to a balanced portfolio of investments.
The ability for fixed income (bond based) mutual funds to provide diversification was confirmed by Financial consultant Ian Narine.
Narine told the BG that aside from the mutual funds being in demand because it is a pooled investment, he said another attractive factor about mutual funds is that these funds allow investors to participate in the reliability of fixed income securities (bonds).
He explained: “The individual investor doesn’t necessarily have the wherewithal to buy bonds and even more so, to trade in bonds.”
Narine indicated that these individuals would not normally be able to access bonds because they are of a certain denomination (the par value of each bond). Recently the Government of T&T issued the NIF bond, which had a $1000 denomination.
He also highlighted another difficulty in individual investors accessing bonds, noting that “it’s one thing to be able to buy it, it’s another thing if you want to sell it because there is no market for bonds per se.”
According to Narine, if an individual investor needs liquidity they would not be able to get it, but as the owner of units in a mutual fund, individuals have the ability to sell their units.
Other Mutual Fund companies also felt the impact of COVID-19.
As at March 31st 2020, Ansa Merchant Bank saw a significant reduction in valuations of investments across the globe and in the local market result in a consolidated loss before taxes for the first quarter of $48.3 million versus $86.0 million in profit before tax for the same period last year. This represented a 156 per cent decline.
The Guardian Group Trust Ltd saw declines in 12 of the 13 Mutual Funds under its management. It’s TT Monthly Income Fund increased by 3.39 per cent to TT$ 764.6 million.
Meanwhile, mutual fund holders would remain uncertain as to when the net asset prices of their fund holdings would fully recover. UTC told the BG that the outlook for 2020 was initially uplifting, especially riding on the momentum from 2019.
However, it noted that across the globe there now is a bias to towards asset prices falling and markets are uneasy in the face of any potential volatility.
It said: “Globally and locally, 2020 will prove to be a challenge for all sectors and the end of 2020 is going to be very different from the beginning.”
Amid such lingering uncertainties, the UTC said that it will continue to “tread cautiously” to bring value to its investments.
