Experts say economic growth is a plus for financial markets

Fortress Fund Managers has welcomed Barbados’ economic growth of 11.8 per cent for the first three months of this year as an encouraging sign for the financial markets.

However, company officials say continued economic growth will be critical, as they reported reduced risk to owning government bonds which Fortress continued to add to its holdings.

During a lunch and learn session on Wednesday, Chief Investment Officer of Fortress Fund Managers Peter Arender said the recently reported first-quarter results for the Barbados economy were promising, although he acknowledged a tough road ahead in the short-term due to rising inflation and other global challenges.

“The first quarter GDP growth was just south of 12 per cent on an annualised basis, which is encouraging. We are still coming out of a pretty deep hole that came about [due to] the drop in tourism from the lockdowns of the pandemic, but this is definitely moving in the right direction,” he said.

Arender said with the tourism sector not yet operating at pre-COVID-19 levels and the global economy still recovering as central banks tighten monetary policies and inflation rise, it was critical for Barbados to maintain its growth rate, which he said was critical to investment.

For the first three months of this year, Fortress reported mixed results but mostly solid gains across its three Barbados dollar funds – the Caribbean Growth Fund, the Caribbean High Interest Fund, and the Caribbean Pension Fund.

The Caribbean Growth Fund recorded a 3.6 per cent gain for the quarter and was up 16.5 per cent over the last year. The Caribbean High Interest Fund declined by 1.8 per cent during the review period and was therefore down 0.2 per cent over the past year.

Meanwhile, the Caribbean Pension Fund, which invests across stocks and bonds in different proportions across three classes of shares, returned between -0.9 per cent and 2.5 per cent in the first three months. They were up between 2.3 per cent and 13.1 per cent over the past year.

Approximately 12 per cent of the Caribbean High Interest Fund portfolio is made up of Government of Barbados bonds.

Investment Director at Fortress Fund Managers Roger Cave disclosed that the company bought some of the $125 million Treasury Notes Government issued last November, three years after it completed its debt restructuring programme.

Cave said prior to the restructuring, Fortress’ exposure was “very low”, adding that he wished there were “more bond opportunities” in Barbados.

“There is not a large range or offering of corporate bonds. We do wish there was a wider spread of those,” he said, adding that he expected interest rates on bonds to recover in the months ahead.

Cave explained that several risk factors were considered when taking up Government bonds, including fiscal performance and debt levels.

“….Going forward, we do expect, now that COVID is largely behind us and the economy is back growing again, that we will get back on track towards bringing our debt levels down and our deficits in order. So, that is what we are expecting to see and we hope that is what happens,” he said.

Making it clear that the bonds were simply a small portion of a “widely diversified fixed income portfolio”, Arender added that the decision to invest in government bonds was also based on potential risks.

Stressing the importance of economic growth coming out of the restructuring process, he said: “Without economic growth all the assumptions made of the restructuring, and so on, just don’t hold together. So, really I would strongly suggest that we do not take our eyes off that ball. The ball is growth and we have to collectively make sure we generate this somehow.”

Arender said Fortress continued to see steady savings among investors.

He also reported that some people have been able to increase their investment despite the ongoing challenges resulting from rising inflation.

“We are seeing still steady interest. The yields on bank accounts are very low so people are naturally looking for alternatives, and the long-term value proposition for investing in good, high quality assets for many years remains just as important and necessary as it was a year ago, five years ago … and as we expect it will be five or ten years from now,” said the Fortress senior official.
marlonmadden@barbadostoday.bb