Wed | Sep 26, 2018

Advisory Column: Do unit trust funds offer real options?

Published:Sunday | May 3, 2015 | 12:00 AM

The existing twenty-six unit trust funds offer informed investors many options to meet their various investment needs and objectives. Soon, there will be thirty-two funds, but it appears that the options will not change meaningfully.

We can hardly speak anymore of money market funds, (long term) fixed income funds, equity funds, blended or mixed funds, or real estate funds. It would not be surprising for more variations to emerge as competition for market share intensifies.

Within the main types of funds, I have been able to comfortably identify sub-categories: local, mixed currency and foreign currency-denominated. The latter is not confined to securities issued by governments or corporations abroad as the Government of Jamaica and Jamaican corporations also issue securities denominated in foreign currencies.

Although some funds are described to suggest that they invest only in a particular class of securities, this is not necessarily so. Capital growth funds, such as equity funds and real estate funds, may include fixed income securities. Fixed income funds may also include equities. The extent to which such combinations occur is set by the trust deed of the unit trust and the regulatory authorities.

The money market funds include a set which invests primarily in local short-term interest-earning securities, a term that I prefer because some debt securities are variable rate and others fixed rate. The Barita Money Market Fund and the NCB M Fund are the best examples.

I have identified two money market foreign currency funds: NCB iB Fund - which invests in US dollar-denominated short and medium term fixed income securities - and the NCB xM Fund - which invests primarily in US dollar-denominated short-term securities.

There is one mixed currency money market fund. It is the Scotia Premium Money Market Fund, which invests in local and foreign government and corporate fixed income securities.

The money market funds include two distribution funds - Barita Income Portfolio and Scotia Premium Money Market Fund. Whereas Barita invests in Government of Jamaica, Bank of Jamaica and corporate debt securities and preference shares, Scotia invests in sovereign and corporate debt denominated in Jamaican and foreign currencies.

The distribution funds are distinguished from other funds by their policy of distributing income on a regular basis to unit holders, who may opt to receive cash or new units equivalent to the value of the cash distribution. The distribution is subject to tax.

Among the local fixed income unit trust funds are Sigma Solution, which invests in Government of Jamaica debt; NCB B Fund, which invests in medium and long term government and corporate debt; JMMB Gilt Edge, which invests in fixed income securities; and Sigma Real Growth, which is inflation-indexed and invests in government debt.

The fixed income US$-denominated unit trust funds are as follows: Sigma Corporate, which invests in US$-denominated international sovereign and corporate debt; NCB xB Fund, which invests in US$-denominated medium to long-term fixed income securities; and the Barita FX Bond Portfolio, which invests in US$-denominated government and corporate debt securities.

There are four equity funds. The Sigma Optima Fund invests in blue chip stocks listed on the Jamaica Stock Exchange whereas the Sigma Global Equity Fund invests in equities listed on international stock exchanges and uses the S&P 500 as its benchmark.

The equity funds include mixed currency funds. They are the NCB E Fund, which invests in local and regional stocks, and the Sigma Venture Fund, which invests in stocks in emerging markets. At the local level, its focus is the JSE Junior Market.

Like the equity funds, the blended funds, also called mixed funds, are capital growth funds. The JMMB Optimum Capital Fund invests in equities, real estate and fixed income securities. The Scotia Premium Growth Fund focuses on stocks, real estate and the money market, and the JMMB Income and Growth Fund invests in equities and fixed income securities.

The Sigma Diversified Investor is a mixed fund of a different kind. A mix of all the Sigma portfolios, it is, in effect, a fund of funds. Its managers have flexibility in determining its composition but, for now, it is mostly invested in real estate.

The solitary dedicated real estate fund, the Sigma Real Estate Fund, does not cater to retail clients given the $500 million level of investment required, but investors may own a piece of the portfolio through the Sagicor Real Estate X Fund.

As new funds emerge, it is not unreasonable to expect some tweaking of the composition of the portfolios to reduce or eliminate duplication and thereby create clearer lines of distinction among the funds. What an excitement in the unit trust market.


Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.