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Heritage Fund back up to US$5.1b
The Heritage and Stabilisation Fund (HSF), T&T’s sovereign wealth fund, bounced back up to US$5.154 billion at the end of the third quarter of 2013, the Ministry of Finance and the Economy said in a recent report. The HSF serves as the national savings account for future generations. It bounced back up to reach US$5.154 billion at the end of the third quarter (Q3) of 2013, improving from the US$4.914 billion to which it had fallen in the second historic loss in its seven-year existence.
In the history of the fund, the national savings account balance or net asset value (NAV) had never contracted until the quarter ended June 30, 2012 and then again, the quarter ended June 30, 2013. It fell from US$4.933 billion in Q1 2013 to US$4.914 billion in Q2 2013. It had fallen from US$4.397 billion in Q1 2012, to US$4.378 billion in Q2 2012.
In the quarter ended September 30, 2013, Government deposited US$42.4 million. Prior to that there were deposits of US$181.3 million in Q3 2012, and US$26.2 million in Q2 2012. In 2011, US$451.4 million—the highest contribution made since 2008—was deposited. In Q3 2010, a contribution of US$373.5 million was deposited, after US$103.8 million was deposited in Q2 2010. The previous administration made only three contributions of US$873.9 million in Q3 2008, US$180.2 million in Q2 2008, and US$321.7 million in Q3 2007.
The fund generated the highest quarterly income in its history in Q3 2013 with US$143.1 million, followed by US$70.7 million in Q1 2013 and US$20.6 million in Q2 2011. The HSF’s July to September 2013 investment report said: “The HSF investment portfolio returned 3.95 per cent for the quarter ended September 2013, compared with a return of 3.47 per cent for the Strategic Asset Allocation (SAA) benchmark. The Fund’s exposure to equity and fixed income contributed positively to absolute returns.
“This brought the HSF investment portfolio return to 8.63 per cent for the financial year ending September 30, 2013, compared to 7.26 per cent for the benchmark. There was a deposit to the fund of US$42.5 million in July. At the end of September 2013, the net asset value of the HSF was US$5.154 billion, an increase from the US$4.914 billion reported at the end of June 2013.”
Over the period July to September 2013, the asset classes of the fund deviated from their SAA, the report said, but their weights were all within the permitted (plus or minus five per cent) range. The approved SAA for the HSF investment portfolio is as follows: US Short Duration Fixed Income Mandate (25 per cent); US Core Domestic Fixed Income Mandate (40 per cent); US Core Domestic Equity Mandate (17.5 per cent); Non US Core International Equity Mandate (17.5 per cent).
Throughout the quarter, the two equity mandates carried overweight allocations relative to their SAA weights and these resulted from their stronger performance when compared with their fixed income counterparts, the report said.
Using investopedia definitions, overweight is a situation where a portfolio holds an excess amount of a particular security when compared to the security’s weight in the underlying benchmark portfolio. Underweight is a situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security’s weight in the underlying benchmark.
By the end of the quarter, the asset class with the largest overweight was the US Core Domestic Equity mandate while the US Core Fixed Income mandate had the largest underweight position. Of the US$5.154 billion NAV, the investment portfolio was valued at US$5.152 billion, while the remaining US$1.9 million was held in cash to meet the day-to-day expenses that arise from the management of the fund.
The fund’s target asset allocation for the period September 30, 2012, to September 30, 2013 shows a portfolio heavily weighted in US fixed income securities, underscoring sovereign T&T’s exposure to a US government default, as that country’s Congress had threatened to cause twice in the last two years.