Unit trust market thrives in uncertainty, mutual funds slide

Published: Friday | November 16, 2012 Comments 0
Brian Frazer, general manager of Scotia Asset Management Limited. - FILE
Brian Frazer, general manager of Scotia Asset Management Limited. - FILE

Steven Jackson, Business Reporter

Jamaicans pumped more money into local unit trust investments while reducing the amounts held in overseas mutual funds at mid-year, according to information out of the Financial Services Commission (FSC).

The funds under management in unit trusts rose by 40 per cent to J$40.7 billion as at June 2012 compared to year-earlier levels.

But mutual fund units held by Jamaicans dropped nearly 20 per cent year-on-year to US$146.8 million (J$13 billion), the local regulator stated in its quarterly Compass newsletter.

Unit trust portfolios include mainly fixed-income securities, equities and real estate investments. During the September quarter, 87 per cent of funds were invested in fixed income, 11 per cent in stocks and two per cent in real estate.

"We have seen a huge increase in that market," Brian Frazer, vice-president at Scotia Asset Management Jamaica, told the Financial Gleaner.

Scotia's portfolio accounts for half of all the unit trust funds under management across the industry. The unit trusts market benefited from favourable returns, increased competition and focused regulation, he said.

Nine unit trust funds are managed by four fund managers: Barita Unit Trust Management Company, Scotia Asset Management (Jamaica) Limited, Pan Caribbean Asset Management, and Capital & Credit Fund Managers.

The growth of the unit trust seesawed the mutual fund market.

Net outflows

"People were shying away from mutual funds because of the poor returns, the European slowdown and US fiscal (cliff). So the decrease is consistent with what we saw on the ground," said Frazer. "There has been a net outflow of funds across (several funds internationally), especially equity funds and its due to the global economic challenges."

There are 17 mutual funds available for sale in Jamaica, according to the FSC Compass. These mutual funds are managed by four fund managers, namely Manulife Mutual Funds (formerly AIC); CI Investments; Scotiabank and JMMB Securities, according to the data. The mutual fund investment portfolios are composed mainly of equities and fixed-income securities.

As at June 2012, there were approximately 9,000 Jamaicans with investments in mutual funds.

Since the summer, however, investor interest in mutual funds is said to have shifted. Analysts link it to the depreciation of the Jamaican dollar amid a pending International Monetary Fund agreement.

"It was only in the last two to three months that we have seen interest in mutual funds again because the Jamaica dollar was under pressure and the uncertainty. Also, some equity funds are up as much as 14 per cent, and we are getting calls again," Frazer said.

He said investors can enter unit trust investments with as little as J$40,000.

Traditionally, investment companies focussed on earning interest income from government paper but new capital requirements resulted in firms increasingly shifting revenues from spreads, which can negatively affect capital ratios, towards fees.

"The FSC's new capital requirements for investment companies offers more incentives to grow the unit trust market versus the repo market. The new regulation was crafted to encourage growth from fees rather than spreads," said Frazer.

Since last year, increased competition resulted in Scotia and PanCaribbean separately launching new unit trust funds and services.

Meantime, the FSC newsletter disclosed that Jamaica's 31 securities firms had J$693 billion of funds under management (FUM) up to June. The figure rises to J$877 billion when the FUMs of another 14 non-financial firms are tallied.

steven.jackson@gleanerjm.com

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