Home' Trinidad and Tobago Guardian : March 23rd 2014 Contents March 23, 2014 www.guardian.co.tt Sunday Guardian
Q: So how have the Funds been performing?
Our Funds continue to do well: The returns on our Income Funds are in
line with prevailing interest rates which are relatively low but still provide a
stable flow of income to our clients (see table 5).
Q: So what adjustments have you been making in response to your
In this environment of low growth, relatively low interest rates and low
inflation, we have a clear preference for equity over bonds, all else equal.
Bonds will continue to provide a stable level of income and of course we
continue our focus on good quality credits. However, we do not see interest
rates falling any further from the current levels and so returns will be roughly
in line with the current level of interest rates which is positive, but low. We
see upside coming mainly from movements in credit rating as opposed to
movements in interest rates. From that perspective, we have shifted some
of our holdings in our Income Funds to credits just below investment-grade
with the expectation that these credits have the potential to be raised to
investment grade (see Table 8). When a credit gets upgraded, the credit
spread applied gets smaller and so, all else equal, the bond value will rise.
Q: What opportunities do you see in equities?
Equities are difficult to predict: while the level of global growth overall is not
supportive of further significant appreciation given that we are currently
near all-time highs on the Dow Jones Industrial Average as well as the S&P
500, the level of liquidity and interest rates are. As such, we remain very
cautious in this area as we zero in on areas of growth within this overall low
1) growth in consumption power in emerging markets -- primarily targeted
at staples but also some discretionary items;
2) growth in use of technology particularly technology that is changing
both manufacturing and consumer behaviour -- robotics, internet, etc.
3) increasing energy production in the U.S. -- focus on infrastructure build
out, i.e. pipelines, storage facilities.
Our TTD Income & Growth Fund has also done very well as the equity
exposure in this Fund continues to bolster the return (see Table 6).
As we are partial towards equities on the whole, we have been consistently
increasing equity allocations in Funds where equities are allowed (see
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Disclaimer: This material is intended as a general source of information only, and should not be construed as offering specific
tax, legal, financial, investment or other advice, and should not be acted or relied upon in that regard without seeking the
advice of a professional. Every effort has been made to ensure that the material is correct at time of publication, but we cannot
guarantee its accuracy or completeness. Interest rates, market conditions, tax rulings and other investment factors are subject
to rapid change. Individuals should consult with their personal tax advisor, accountant or legal or other professional before
taking any action based upon the information contained in this material.
Q: In a previous report you suggested the prospect for continued
global weakness with growth being positive but very low. Is this
still your outlook?
Yes it is and continues to be confirmed by recent economic data:
the unemployment rate in the U.S. is coming down but so too is the
participation rate, meaning that people are still frustrated in their job
search and dropping out of the workforce entirely. While this may be
partly due to an aging population, if you look at table 7, you will see that
the decline in participation rate is across all age groups, not just those at
or close to retirement age. This decline in participation is in line with the
level of job creation: over the last 10 years the U.S. has on average created
approximately 600,000 new jobs per year, however, given the size of the
U.S. population, 1,500,000 jobs are needed.
Europe has returned to growth but only just -- the last GDP read on the
region was 0.5%, so it's positive but by no means stellar. Again, job creation
remains challenged across Europe, with the exception of Germany and so
it is difficult for consumption-driven economies like those in the European
region to grow while employment remains below trend.
TABLE 7 -- PARTICIPATION RATE U.S.
Rate 2003 Participation
Rate 2013 Change
TABLE 9 - ASSET ALLOCATION ROYTRIN TTD INCOME & GROWTH FUND
TABLE 8 - AVERAGE CREDIT RATING ROYTRIN TTD INCOME FUND
TABLE 8 - AVERAGE CREDIT RATING ROYTRIN USD INCOME FUND
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