After a year plagued by distress rumours and withdrawals, the Unit Trust Corporation (UTC) has posted profits of $51.56 million for 2010. It's a 41 per cent decline from 2009's $88.89 million profits. First Scheme unitholders were paid a dividend of 11 cents, the smallest distribution the UTC's paid in years.
Despite the decline, executive director Eutrice Carrington told the Business Guardian the company has done well. Carrington's conclusion is premised on the low interest rate environment, characteristic of 2010, and limited investment opportunities. And, as part of the UTC's bid to dispel the idea that its CL Financial investments-in Republic Bank and Lascelles de Mercado-could have caused the smaller profits posted, Carrington said the UTC will list the securities in its investment portfolio in its 2010 annual report."The Republic Bank shares that we hold continue to perform, the Lascelles bond is being restructured. The restructuring of that bond was concluded in this year. However, the interest due and outstanding amount were paid. Those are the two investments the funds had exposure to and the bond in supposed to be repaid in full in July of this year." Listing the securities is a position in which she's advocated for years, but now has more buy-in, she admitted.
In spite of the concern last year, the UTC has reasons to boast:
• The UTC attracted 15, 542 unitholders in 2010 while existing unitholders increased the number of accounts they held to 21,689.
• Sales for 2010: $ 7.8 billion• Its Energy Fund was its best performing product
"I must say of the ten funds, eight generated positive rates of returns and two generated negative rates of returns, very small negative rates," she said.
Those negative rates were:
First unit scheme: -1.55 per cent
European Fund: -1.21 per cent
"When we say we are focused on protecting unitholder value, it is demonstrated in the return. We did not destroy unitholder value. We were able to protect it as well as generate small negative rates of returns. We did have repurchases, heavy repurchases as well," she acknowledged. Even so, Carrington's firm that 2010 was a year, as an investor, to be conservative and preserve capital. This resulted in a $3 billion build-up of capital in the UTC's capital accounts waiting for investment opportunities. "We were earning a rate of interest on it, but we weren't able to earn rates in excess of what you'll get on a capital account. Those rates of return were superior to the Treasury Bill rate and, therefore, it was better to leave your money in your capital account," she said. "We were taking advantage of investment opportunities as they come along," she explained, "but you must have sufficient activities in the marketplace." When it came to bonds, the UTC was judicious in its choices: bypassing low-yielding bonds for fear that capital will be eroded when interest rates pick back up.
For example, the UTC participated in 24 bonds issued in 2009 and the 19 bonds issued in 2010. "So there was less opportunity for diversification." It gave the investment managers an opportunity to take a critical look at UTC's portfolio. A lot of pruning was done, Carrington explained. "This was done to rebalance the portfolios and positioning them for growth when the recovery comes. "There were opportunities in the money market which we took advantage of. We went into the stock market and we did some pruning of our portfolio. We offloaded things which weren't doing too well and we bought things we thought would have value going forward," she said. Of course, it's a constant balancing act. For instance, following the oil spill in BP's Deepwater Horizon in the Gulf of Mexico last April, which lead to a drop in the share price, the UTC was forced to dispose of its BP shares. Carrington observed that the disaster created buying opportunities for investors who did not hold the stock.
"For those who held the stock, we held the stock, we have to operate differently. We have to manage that downside risk because we have erosion in stock price and, as a result, we had to dispose of the stock in order to minimise the impact of falling stock prices on the portfolio. "We knew that the stock would recover. We were confident that it would recover, but we also knew that the stock was going to fall steeply and would have hurt the portfolio. We stepped back from the market and went back to pick up the stock at lower prices." For this reason, the UTC has focused on building its international portfolio despite the volatility in the world markets."When stocks are not performing, you have to bear the pain because you can't liquidate your position because you have a very illiquid stock market." "We have reorganised our portfolio conscious of the fact that we are in a very illiquid market so that we can treat with it because the exit opportunities are not readily available."