In its October Monetary Policy Review (MPR), the Central Bank reported that the aggregate value of the funds under the management of local mutual funds in September 2010 amounted to $36.5 billion in-of which $32.6 billion was placed in what the institution referred to as money market funds and $3.6 billion in equity funds. This means, according to the Central Bank that the aggregate value of the funds under the management of local mutual funds increased by 59.4 per cent between March 2004 when the funds under management was $22.9 billion. The document states that aggregate funds under management refer to all funds "collected by the Central Bank including funds management by the Trinidad and Tobago Unit Trust Corporation, Roytrin, Republic Bank and First Citizens Bank Ltd.
Since the Central Bank does not collect monies from this country's mutual funds, one suspects that this footnote to Appendix I of the MPR was referring to "collate" and not "collect. " Interestingly, the statistics presented in the MPR indicate that in September, 2010, some 89.3 per cent of the funds under the management of the four local mutual funds that the Central Bank collates information on were held in money market funds and 10.7 per cent in equity mutual funds. It is also interesting to note that in June 2005, when the composite index of the local stock market reached an all-time high of 1170.3 (the Central Bank presents the information quarterly), the amount of money held in those equity mutual funds totalled $6.8 billion. This was 23 per cent of the $29.8 billion then held under management.
By the way, in June 2008, when the local composite index was at 1150.2 (as a result of the influence of the sale of the RBTT Financial Holdings Group to the Royal Bank of Canada and also as a result of the sky-high levels that T&T's petrochemical exports had reached), the holdings of equity mutual funds totaled $5.7 billion or 15.5 per cent of the funds under the management of the four mutual funds. There may be a relationship between the performance of the local stock market and the amount of money that local investors choose to hold in equity mutual funds as opposed to what the Central Bank refers to as money market funds. This should be the subject of an academic paper from the University of the West Indies.
Readers might also be interested to note that the monies held in money market mutual funds in September, 2010 amounted to 51.6 per cent of commercial bank deposits in that month. Also, the peak quarter for mutual funds assets under management was July to September 2009 when that figure reached $40.7 billion-of which money market funds accounted for $36.7 billion or 90 per cent of the funds under management. In that quarter, assets held in money market funds amounted
to 57.8 per cent of deposits in the country's commercial banks. In the MPR, the Central Bank observed that despite the very low interest rates that commercial banks were offering to depositors since the beginning of 2010, investors preferred to hold their funds in deposit accounts at commercial banks.
As the Central Bank opined: "Apart from considerations of safety, liquidity appeared to be an important consideration in the minds of depositors, accounting for the rise in the demand and savings categories, which tend to offer near zero interest rates." And in a reference to the decision of RBTT in 2009, the Central Bank stated: "One of the specific factors that stimulated the move to bank deposits occurred at the end of 2009/beginning of 2010 when investors pulled out of one particular mutual fund which decided to switch its income funds to a floating net asset value basis."
Now, several points can be made about T&T's mutual fund industry:
• It is likely to be larger than the $36.5 billion in assets under management cited by the Central's collation of information from the four main providers. According to a March 2007 paper by the local Securities and Exchange Commission on "Presentation Standards for the Promotion of Collective Investment Schemes,"as at March 31, 2006, the number CISs (including mutual funds) held in the Commission's registers increased to 185 separate schemes in 65 prospectuses with aggregate funds under management;
• whatever the actual amount of funds under management, it is clear that a significant percentage of the savings of T&T nationals are held in local mutual funds and a significant percentage of the funds that are being saved in local mutual funds are now being held in money market/income funds where the returns on the investment are between 1 and 4 per cent;
• unlike mutual funds in more developed markets, local mutual funds get away with publishing the minimum of information in their quarterly reports. In most developed markets, mutual funds publish their top ten holdings and give the percentage of stock, bonds, cash or other investments that these mutual funds hold. On Tuesday, an enquiry was made by an existing investor in a mutual fund controlled by a commercial bank for the more detailed information on their investment portfolio. Instead of providing the information, the investor was referred to the September, 2010 quarterly report, which does not have the information. The bank's response was that it communicates with its investors via a newsletter, which is distributed on a quarterly basis. So, what about potential investors?;
• it is also clear that the regulation of the huge local mutual fund industry leaves a great deal to be desired. Although the Securities and Exchange Commission has published guidelines for the country's mutual funds and although an SEC official was confident that the industry complies with these guidelines, there are no by-laws by which local mutual funds are regulated. This has led to a situation where a prominent local mutual fund, although required to publish reports on the performance of its funds on a regular basis, had the quarterly report for June 2009 on its website up until Tuesday morning when the error was pointed out to the commercial bank;
• local mutual funds regularly sell investments in their funds without providing the investors with the most-up-to date information. In October, an investor placed some money in a income fund without being provided with the detailed information on the composition of the fund that he had asked for. When the investor discovered that the income fund contained a significant percentage of US dollar bond that would depress the value of the income fund in the future because of the trend of US interest rates, a decision had to be taken to redeem most of the investment.