Na­tal­ie?Brig­gs

In our con­tin­u­ing ef­fort to bring to our read­ers the range of sav­ings and in­vest­ments op­tions avail­able to them, the Sun­day BG spoke to Kurt Val­ley, pres­i­dent of the Mu­tu­al Fund As­so­ci­a­tion of T&T (MFATT). Val­ley breaks down the con­cept of mu­tu­al funds and how they work to bring re­turns.

What is a mu­tu­al fund?

A mu­tu­al fund is a form of col­lec­tive in­vest­ment where in­vestors pool their mon­ey in­to one fund by pur­chas­ing units in the fund. This pur­chased unit should be con­sid­ered an in­vest­ment and is not a bank de­posit where the funds are cov­ered by the De­posit In­sur­ance Cor­po­ra­tion.

The pooled funds are then in­vest­ed in dif­fer­ent types of se­cu­ri­ties such as bonds, trea­sury notes or stocks, guid­ed by the in­vest­ment man­date of the fund, where they gen­er­ate re­turns which are then passed on­to each in­vestor.

What are the pros and cons of in­vest­ing in a mu­tu­al fund, as op­posed to eq­ui­ties, bonds, for­eign ex­change and the like?

Some of the pros of in­vest­ing in mu­tu­al funds are:

Low­er risk through di­ver­si­fi­ca­tion:

Since mu­tu­al funds in­vest in a wide ar­ray of se­cu­ri­ties there is in­stant di­ver­si­fi­ca­tion with a rel­a­tive­ly small amount of in­vest­ment. Be­ing di­ver­si­fied al­lows the port­fo­lio to earn high­er re­turns with­out fac­ing equal­ly high risks.

Pro­fes­sion­al port­fo­lio man­age­ment:

These funds are man­aged by full time pro­fes­sion­al port­fo­lio man­agers who vig­i­lant­ly mon­i­tor the per­for­mance of the funds.

Im­proved ac­cess to the cap­i­tal mar­ket:

Through the fund, in­di­vid­u­als gain ac­cess to se­cu­ri­ties that may not be as eas­i­ly avail­able to them as rel­a­tive­ly small in­di­vid­ual in­vestors.

Liq­uid­i­ty:

In­vestors can eas­i­ly buy and sell their units from their mu­tu­al fund provider

Easy record keep­ing:

Mu­tu­al fund in­vestors are pro­vid­ed with reg­u­lar state­ments of their hold­ings in each fund vs. keep­ing track of their in­di­vid­ual in­vest­ments on their own.

Low­er trad­ing costs:

When in­di­vid­u­als pool their funds, sig­nif­i­cant sav­ings in trans­ac­tion costs can be achieved aris­ing from few­er trans­ac­tions in larg­er amounts.

Some of the cons are:

Man­age­ment fees:

In­vestors should pay at­ten­tion to all the fees charged to a fund. This would in­clude the in­vest­ment man­age­ment, trustee and dis­tri­b­u­tion fees. While these fees are nec­es­sary, fees re­duce over­all in­vest­ment re­turns to the in­vestor. In­vestors should en­sure that they con­tin­ue to get val­ue for their mon­ey by judg­ing funds based up­on their net re­turn.

Po­ten­tial man­age­ment abus­es:

In­vestors should re­view the prospec­tus­es, fi­nan­cial state­ments and hold­ings re­ports for the funds they wish to in­vest. These in­vest­ments are owned by each of the in­vestors in the fund and they have the right to know what com­pris­es the fund. This dis­clo­sure will help en­sure that mu­tu­al funds ad­here to their in­vest­ment man­dates and re­main as trans­par­ent as pos­si­ble.

Could I have some back­ground on MFATT. When was it found­ed?

The Mu­tu­al Fund As­so­ci­a­tion (MFATT) is a non-prof­it com­pa­ny in­cor­po­rat­ed un­der the Com­pa­nies Act, 1995. The mem­bers of the as­so­ci­a­tion com­prise the largest op­er­a­tors of mu­tu­al funds in T&T.

The as­so­ci­a­tion is man­aged by a board of di­rec­tors which meets quar­ter­ly and is com­prised of pres­i­dent and chair­man, Kurt Val­ley of First Cit­i­zens As­set Man­age­ment Ltd; the vice-pres­i­dent and deputy-chair­man, Bal­dath Ramkissoon of Re­pub­lic Bank Ltd; the trea­sur­er, Car­olyn James of Bourse Se­cu­ri­ties Ltd, as well as rep­re­sen­ta­tives from the Unit Trust Cor­po­ra­tion, Guardian As­set Man­age­ment, ANSA Mer­chant, and RBC In­vest­ment Man­age­ment. The cor­po­rate sec­re­tary is An­nette Borel.

What was the rea­son for its be­ing found­ed?

The main rea­sons for the for­ma­tion of the Mu­tu­al Fund As­so­ci­a­tion are to, first­ly, pro­mote pro­fes­sion­al­ism and ex­em­plary prac­tice among mem­bers in the eth­i­cal con­duct of the mu­tu­al fund busi­ness.

Sec­ond­ly, MFATT would like to raise the pro­file of the mu­tu­al fund in­dus­try to make T&T the prime lo­ca­tion and a domi­cile for mu­tu­al funds and the pre­ferred choice for the ad­min­is­tra­tion of mu­tu­al fund ser­vices. This in­cludes height­en­ing the pro­file of this in­dus­try in lo­cal, re­gion­al and in­ter­na­tion­al spheres.

Third­ly, MFATT will pro­vide a fo­rum for mem­bers to dis­cuss is­sues on mat­ters re­lat­ing to the mu­tu­al fund in­dus­try.

As a body we will al­so rep­re­sent mem­bers col­lec­tive­ly in dis­cus­sions with, or as­sist any mem­ber to make any rep­re­sen­ta­tion or rec­om­men­da­tion to, any gov­ern­ment, gov­ern­ment rep­re­sen­ta­tive or su­per­vi­so­ry au­thor­i­ty which is con­cerned with the mu­tu­al fund in­dus­try.

Fi­nal­ly MFATT will serve the gen­er­al so­ci­ety by pro­vid­ing an av­enue for pub­lic com­ment and feed­back, pro­mot­ing ed­u­ca­tion on mu­tu­al fund in­vest­ments, serv­ing as an in­for­ma­tion re­source for re­search, es­tab­lish­ing re­port­ing stan­dards and sup­port­ing the de­vel­op­ment of em­ploy­ees of the mu­tu­al fund in­dus­try through train­ing, con­fer­ences and pro­grammes.

Who are its mem­bers?

The cur­rent mem­bers of MFATT are:

�2 AIC Fi­nan­cial Group

�2 ANSA Mer­chant Bank

�2 Bourse Se­cu­ri­ties Ltd

�2 First Cit­i­zens As­sets Man­age­ment Ltd

�2 Guardian As­set Man­age­ment Ltd

�2 RBC In­vest­ment Man­age­ment (Caribbean) Ltd

�2 Re­pub­lic Bank Ltd (RBL)

�2 T&T Unit Trust Cor­po­ra­tion (UTC)

How does an or­gan­i­sa­tion like MFATT in­tend to help bring greater aware­ness to mu­tu­al funds as a prod­uct?

MFATT aims to in­crease mu­tu­al fund aware­ness pri­mar­i­ly through the web­site mfatt.org where users can gain a ba­sic un­der­stand­ing of how mu­tu­al funds work, de­ci­pher in­dus­try jar­gon, as well as ac­cess cur­rent in­dus­try sta­tis­tics, along with rel­e­vant lo­cal and re­gion­al in­dus­try news and mar­ket ac­tiv­i­ties.

MFATT has al­so worked close­ly with Val­ue Hori­zon to de­vel­op the Caribbean Mu­tu­al Fund Jour­nal. This in­de­pen­dent pub­li­ca­tion pro­vides in­for­ma­tion on all the lo­cal mu­tu­al fund play­ers giv­ing in­di­vid­u­als an in­cred­i­bly de­tailed view of the lo­cal in­dus­try as well as en­abling pow­er­ful com­par­i­son tools among var­i­ous funds with­in the var­i­ous in­vest­ment groups.

We con­tin­ue to en­cour­age our mem­ber­ship to pub­lish joint re­ports list­ing the top 10 hold­ings in their funds along with re­turn and ex­pense ra­tio in­for­ma­tion.This would pro­vide in­vestors with an easy way of quick­ly com­par­ing the var­i­ous in­vest­ments in the mu­tu­al fund mar­ket.

Men­tion was made at a sem­i­nar we both re­cent­ly at­tend­ed about in­for­ma­tion that MFATT in­tend­ed to make avail­able to the pub­lic, that could shift the way fi­nan­cial in­sti­tu­tions share in­for­ma­tion with their publics. Could you shed some more light on this?

MFATT's aim is to move the in­dus­try in­to a cul­ture of in­creased dis­clo­sure of in­for­ma­tion to in­vestors as well as the gen­er­al pub­lic. We be­lieve giv­ing in­vestors more in­for­ma­tion about their mu­tu­al funds will al­low them to make more in­formed de­ci­sions about their in­vest­ment choic­es.

Some MFATT mem­bers have cho­sen to share their Top 10 hold­ings and First Cit­i­zens has opt­ed to not on­ly dis­close their Top 10 hold­ings in each fund but to make the en­tire port­fo­lio avail­able on­line at mfatt.org and the First Cit­i­zens web­site so that in­vestors can re­view the un­der­ly­ing in­vest­ments of their mu­tu­al funds.

Shar­ing this in­for­ma­tion will cre­ate ef­fi­cien­cies in the in­dus­try as mu­tu­al fund providers will com­pete more in­tense­ly for the funds of high­ly knowl­edge­able in­vestors.

Most im­por­tant­ly, the in­creased dis­clo­sure will tend to im­prove gov­er­nance by our as­so­ci­a­tion mem­bers, reg­u­la­tors, and gov­ern­ment pol­i­cy mak­ers. Through greater trans­paren­cy, there is an in­creased like­li­hood that a spot­light will be shone on im­pru­dent in­vest­ment al­lo­ca­tion choic­es, which would have oth­er­wise put in­vestors' cap­i­tal at risk, there­by re­duc­ing them.

?

How do pre­vail­ing eco­nom­ic con­di­tions, (the low in­ter­est rate en­vi­ron­ment in T&T, low oil prices, the Fed in­creas­ing in­ter­est rates in the US) af­fect mu­tu­al funds?

This is a very com­plex ques­tion and the most hon­est an­swer is that it de­pends. It de­pends on the in­vest­ment man­date of the fund, the port­fo­lio man­ag­er's skill and strat­e­gy but, most im­por­tant­ly, it de­pends on the speed and mag­ni­tude of each of these chang­ing mar­ket fac­tors.

For in­stance, low in­ter­est rates are gen­er­al­ly bad for bond funds but a net pos­i­tive for eq­ui­ty funds. Low oil prices for oil pro­duc­ing coun­tries like ours, would prob­a­bly re­sult in more gov­ern­ment debt fi­nanc­ing that would be help­ful to lo­cal bond in­vestors by pro­vid­ed much need­ed sup­ply to the cap­i­tal mar­ket.

The Fed in­creas­ing in­ter­est rates is a re­sponse to the US econ­o­my do­ing much bet­ter, which is a net pos­i­tive for the world.

Ris­ing US rates would not be too trou­bling as long as the rate in­creas­es are well telegraphed to the mar­ket and an­tic­i­pat­ed. Sharp in­creas­es in in­ter­na­tion­al in­ter­est rates would be dam­ag­ing for both debt and eq­ui­ty funds, as the mar­ket does not like sur­pris­es.

My ad­vice to your read­ers would be to call their port­fo­lio man­agers and ask them about how they view the eco­nom­ic land­scape and how are they po­si­tion­ing their port­fo­lios to prof­it from the chang­ing winds.

If they are in agree­ment with the port­fo­lio man­ag­er, then that is where they should in­vest.

How are fund man­agers com­pen­sat­ed?

As fund man­agers we are paid a man­age­ment fee which is usu­al­ly cal­cu­lat­ed as a per­cent­age of the net as­set val­ue of the fund. The man­age­ment fee rate may vary for each fund from each mu­tu­al fund provider. In­vestors should ask about the funds ex­pense ra­tio and read the re­spec­tive fund's prospec­tus care­ful­ly to have a bet­ter un­der­stand­ing of the fees that are charged be­fore mak­ing any in­vest­ment de­ci­sion.