Home' Trinidad and Tobago Guardian : January 18th 2015 Contents JANUARY 18 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG5
Fund Journal. This independent publication provides information
on all the local mutual fund players giving individuals an incredibly
detailed view of the local industry as well as enabling powerful
comparison tools among various funds within the various investment
We continue to encourage our membership to publish joint reports
listing the top 10 holdings in their funds along with return and
expense ratio information.This would provide investors with an easy
way of quickly comparing the various investments in the mutual
MFATT s aim is to move the industry into a culture of increased
disclosure of information to investors as well as the general public.
We believe giving investors more information about their mutual
funds will allow them to make more informed decisions about their
Some MFATT members have chosen to share their Top 10 holdings
and First Citizens has opted to not only disclose their Top 10 holdings
in each fund but to make the entire portfolio available online at
mfatt.org and the First Citizens website so that investors can review
the underlying investments of their mutual funds.
Sharing this information will create efficiencies in the industry
as mutual fund providers will compete more intensely for the funds
of highly knowledgeable investors.
Most importantly, the increased disclosure will tend to improve
governance by our association members, regulators, and government
policy makers. Through greater transparency, there is an increased
likelihood that a spotlight will be shone on imprudent investment
allocation choices, which would have otherwise put investors capital
at risk, thereby reducing them.
This is a very complex question and the most honest answer is
that it depends. It depends on the investment mandate of the fund,
the portfolio manager s skill and strategy but, most importantly, it
depends on the speed and magnitude of each of these changing
For instance, low interest rates are generally bad for bond funds
but a net positive for equity funds. Low oil prices for oil producing
countries like ours, would probably result in more government debt
financing that would be helpful to local bond investors by provided
much needed supply to the capital market.
The Fed increasing interest rates is a response to the US economy
doing much better, which is a net positive for the world.
Rising US rates would not be too troubling as long as the rate
increases are well telegraphed to the market and anticipated. Sharp
increases in international interest rates would be damaging for both
debt and equity funds, as the market does not like surprises.
My advice to your readers would be to call their portfolio managers
and ask them about how they view the economic landscape and
how are they positioning their portfolios to profit from the changing
If they are in agreement with the portfolio manager, then that
is where they should invest.
As fund managers we are paid a management fee which is usually
calculated as a percentage of the net asset value of the fund. The
management fee rate may vary for each fund from each mutual
fund provider. Investors should ask about the funds expense ratio
and read the respective fund s prospectus carefully to have a better
understanding of the fees that are charged before making any invest-
From Page 4
Buck up, profits down
High dollar dents US company earnings
The victims vary: Fast-food colossus
McDonald s. Technology giant Oracle.
Medical device maker Cooper Cos.
The culprit s the same: A surging
A symbol of American economic
might, the rising dollar is denting the
earnings of U.S. companies that operate
overseas. The damage started showing
up in results for the July-September
period, and the picture will likely get
uglier as companies report earnings for
the final three months of 2014.
"It s clearly a drag on corporate prof-
its,"says David Kelly, chief market strate-
gist at J.P. Morgan Funds.
A few months ago, Kelly notes, ana-
lysts had expected a double-digit annual
rise in corporate profits in the fourth
quarter. Now, in part because the dollar
is carving into earnings, they re fore-
casting just 4.6 per cent overall earnings
growth for companies in the Standard
& Poor s 500 index.
A prolonged drop in profits risks rat-
tling investors and pressuring stocks.
Among major industries, technology
companies and producers of energy
and raw materials generally derive the
highest percentage of revenue from
abroad, according to S&P Dow Jones
Since June 30, the dollar has jumped
16 per cent against the Japanese yen.
Against the euro, it s up 18 percent.
Against the Brazilian real, nearly 20
Investors are buying dollars and driv-
ing it higher largely because the Amer-
ican economy is humming while other
economies are sputtering. In Europe
and Japan, growth has flat-lined. In
China, it s slowed.
Investors are also seizing on higher
interest rates in the United States: The
super-safe 10-year US Treasury note
yields 1.74 per cent --- miserly by his-
torical standards but richer than the
0.46 yield on 10-year German gov-
ernment bonds or the 1.59 percent on
10-year Spanish bonds.
A higher-valued dollar delivers a
double blow to American exporters: It
makes US products costlier --- and
therefore less competitive --- in foreign
countries. And it means the revenue
that US companies collect in, say, euros
is worth fewer dollars once they bring
the money home. In that way, the
strong dollar shrinks profits, too.
Across the S&P 500 index, nearly
half of total revenue comes from outside
the United States.
American companies are hardly alone
in suffering from currency swings.
Swiss companies are hurting because
their currency, the franc, is much
stronger than the euro. Their plight
worsened on Thursday, when the Swiss
central bank suddenly abandoned its
effort to cap the value of the franc
against the euro. The news sent the
franc soaring against the euro. The
Swiss National Bank abandoned the
cap because it had proved too costly,
requiring ever-larger purchases of euros.
FiREaPPS, a consulting firm that
advises clients on managing currency
fluctuations, says 202 North American
companies have said currency swings
would reduce revenue from July through
September --- up 53 per cent from the
"It s started to bite,"says Ralph Hardt,
president of the Jagemann Stamping
Co. in Manitowoc, Wisconsin, where
exports account for about one-fifth of
revenue. "You risk having a (foreign)
competitor getting between you and
The dollar s surge is "going to be a
large source of disappointment,"says
Margie Patel, who manages US$1.4 bil-
lion in stocks and bonds at Wells Fargo
Asset Management. She says the
stronger dollar could reduce companies
fourth-quarter earnings 5 percent or
more, depending on how much busi-
ness they do abroad.
Consider McDonald s, which has
locations in more than 100 countries.
Revenue fell 6 per cent in November
from a year earlier at its company-
owned and franchise restaurants, and
the drop was due largely to the rising
If currency values had remained flat,
revenue would have inched up 0.1 per
cent. McDonald s warned last month
that the higher dollar could shave up
to 9 cents off its fourth-quarter earn-
ings per share, which analysts expect
to be US$1.23.
At Oracle, the stronger dollar was
the difference between profit growth
and decline in its last fiscal quarter.
For the three months through Nov. 30,
Oracle s net income fell 2 per cent. If
the dollar had stayed flat, net income
would have risen 3 per cent, Oracle
Companies can enter into hedging
arrangements that act like insurance
policies against the rising dollar.
"But hedging is never perfect,"says
Mark Luschini, chief investment strate-
gist at Janney Montgomery Scott.
"They may be behind the curve,"given
the dollar s propulsive rise.
For foreign companies that do busi-
ness in the United States, of course,
the strong dollar has just the opposite
effect: It helps.
Japanese auto giant Toyota in
November raised its profit projection
for the year through March 2015 by
220 billion yen (US$1.8 billion) to 2
trillion yen (US$16.7 billion), in part
because the stronger dollar would boost
JP Morgan s Kelly says the higher
dollar could help the ailing economies
of Europe and Japan.
"It may help stabilize the global
For now, that s little solace to U.S.
companies such as Cooper, which
expects the surging dollar to shrink
revenue by US$100 million (to US$1.9
billion to US$1.96 billion) in the fiscal
year that ends Oct. 31.
"If there s anyone on the line that
knows how to weaken the dollar, please
send your suggestions to Washington,
D.C., or someplace,"Cooper s CEO,
Robert Weiss, said in a December con-
ference call with analysts, according a
transcript on the website Seeking Alpha.
"I kno w we re not the only company
that is dealing with foreign exchange,
trust me, but it is kind of painful."
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