Little optimism for strong investment returns in the region in near term

A top official at one of Barbados’ leading mutual fund managers is not very optimistic there will be good returns in the local and Caribbean bonds and equity market in the short to medium term.

Chief Executive Officer of Fortress Fund Managers Peter Arender gave his assessment during the company’s recent quarterly Lunch and Learn press briefing, in which he provided an overview of the performance of the funds managed by Fortress.

Pointing to the slim investment options in Barbados and the rest of the region, Arender said, “There is still not a ton of options to generate good returns.”

“The domestic Barbados bond market, there is not much in it still. The wider Caribbean equity market – prices in Jamaica have come down a lot from their highs of 2019 but, again, we are looking at financial institutions primarily in these markets and we still think there could be pressures on earnings in those companies.

“So we don’t look around the Caribbean and see a ton of great opportunities, but that may change in the next several months,” he said.

Arender said this underscored “the need for investors everywhere but especially here, to diversify investment portfolios as much as possible, and that means global investments as well as obviously investment in Barbados and the Caribbean”.

He explained that while bond yields from companies “look pretty good”, investors remained very selective as it relates to the equity market.

Arender said although the US market was currently looking strong, he believed a weakening of the economy could pile pressure on the investment market there, making it more difficult to make “a normal profit margin”.

“I think the pressure on margins will be something that we come to face in the next several months or one to two years,” he said, indicating that inflation and high interest rates could become less of a worry.

“So I think we are going to need to be very selective and focused on companies that are resilient, good, high-quality operators where we can buy shares at reasonable prices,” he said while expressing hope that US-dollar bonds and global equity would yield good returns.

The Barbados dollar funds managed by Fortress Fund Managers were largely unchanged in the second quarter of 2023, while prices of investments across the funds remained “attractive and consistent with meaningful future returns”.

The Caribbean Growth Fund declined 0.1 per cent in the review quarter but was up 0.9 per cent over the past year, with gains in the fund’s global investments being offset by weakness in Caribbean Holdings.

Meanwhile, the Caribbean High Interest Fund recorded gains of 1.9 per cent over the past year with a decline of 0.1 per cent in the second quarter of this year.

Fortress noted in its report that in Barbados, the bond market remained quiet.

“Our existing corporate and government holdings continued to perform as expected. Cash in the portfolio is still higher than desired at 19 per cent of the portfolio. The average gross yield of the portfolio increased slightly to 4.2 per cent during the quarter, a good estimate of the Fund’s medium-term return potential,” it said.

The Caribbean Pension Fund returned between -0.1 per cent and 0.1 per cent in the second quarter and was up between 1.8 per cent and 1.9 per cent over the past year.

Fortress manages over $800 million in assets across 12 funds with investments in regional, US, international and emerging markets.

The company reported that its World Growth Fund was up 3.3 per cent in the second quarter, due to strengthened global equities during the review period.

The World Fixed Income Fund declined one per cent in the quarter, but that was still up one per cent over the past year.

Arender said while the bond market remained more stable than that of equities, the bitter taste of the 2018 debt restructuring in Barbados was still lingering. He contended that with government bonds still a little bit below investment grade, investors needed to adapt.

“I think there is a role to play for the government bonds. But all investors need to recognise these are still speculative securities from an investment point of view, and it [goes] back to the need for as much diversification as we can humanely generate for our investment portfolios,” Arender said.

marlonmadden@barbadostoday.bb