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Sterling Investments predicts stability despite commodity volatility

Published:Sunday | March 6, 2016 | 3:00 AMSteven Jackson
Charles Ross, CEO of Sterling Asset, the management company for Sterling Investments Limited.

Sterling Investments Limited (SIL), headed by Charles Ross, expects continued volatility in overseas bond and equity markets in 2016 arising in part from low commodity prices.

Despite these challenges, SIL should still offer stable returns, the company said in a statement with the release of its year end report.

"Bond and equity markets are expected to continue to be volatile in 2016 as international markets continue to be plagued by a relative lack of liquidity, low commodity prices, and weaker economic growth.

Notwithstanding, SIL's portfolio is well balanced and continues to provide a stable source of revenue to shareholders," said the fund manager, a St Lucia-registered international business company that attracted investors from several of Jamaica's pension funds.

The uncertainty regarding the extent of the increases in US interest rates, coupled with the slowdown in China's growth and the downturn in oil prices fuelled volatility in 2015 and into early 2016. The US equity market was essentially flat, losing just 0.73 per cent in 2015, while bond indices including the Barclays high yield bond ETF US index dipped 12 per cent in 2015.

Since the beginning of 2016, the S&P 500 declined by 8.8 per cent and the Barclays high-yield bond index declined by 4.6 per cent.

SIL made net profit after tax of $71.16 million for the year ending December 2015 or 21.4 per cent higher than the previous year.

 

TOTAL REVENUE GROWTH

 

The company continues to grow total revenues which stood at $119.29 million compared to $96.7 million, or 23.3 per cent higher year-on-year. Net interest income totalled $72.8 million or 32.3 per cent higher than net interest income for the corresponding period in 2014 of $55 million.

"This is a very strong showing amid a year remembered for its severe volatility," said SIL.

"Bond trading was particularly challenging in 2015 and careful navigation increased the revenue of the portfolio."

SIL's net interest margin remained relatively unchanged at 92.5 per cent due primarily to the company's decision to keep funds in hard currency, the directors said. Also, gains on the sale of investments more than doubled in a year from $4.9 to $12.4 million at December 2015 as SIL realised some of the trading gains in its portfolio.

"The company continuously monitors the portfolio with a view to profit taking when conditions are favourable," SIL said.

Operating expenses were $21.7 million or 11.5 per cent lower than the $24.5 million of operating expenses for the corresponding period in 2014.

"The lower expenses are a result of tight fiscal management; however, the results were negatively affected by a restructuring charge of J$9.6 million on a corporate bond. This is a one-off charge and will not recur in subsequent years," the directors explained.

Total equity increased by 28.6 per cent from $539.5 million in December 2014 to $693.9 million in December 2015, notwithstanding the negative impact of the widespread decline in the prices of bonds and equities. This increase was due to the issuance of new shares.

steven.jackson@gleanerjm.com