It might be the least likely option for the average investor but, when the economy turns south, your best bet is to hit the bond markets. Bonds, sovereign debt and fixed-income instruments have been the focus of First Citizens' El Tucuche Fixed Income Fund, the performance of which–since the fund was launched some 12 months ago–has surprised many investors and fund managers. "We just had the timing right with this fund," said Ian Briggs, head of product development and current officer-in-charge at First Citizens Asset Management Ltd. "We really researched the market before we launched this fund, and it showed that there was a gap for investors wanting a safe haven from equities and other more volatile assets.
"The El Tucuche was able to outperform everything else on the market because it was focused correctly on just the right class of investments at the right time, that is, fixed income assets. Although these investments always perform well in a downturn because they are government-backed securities, with very low risk, they are able to hold their own when the economic cycle turns upward. "It also helps that we are a major competitor on the Trinidad market. Trinidad is the most buoyant economy in Caricom, as the other islands have been hard hit by the global downturn and the poor performance from their tourism sectors. We have been able to avoid many of these pitfalls." He said the global economy in the last year, led by the commodity markets, turned so rapidly that many investors wanted a haven for their cash after the hasty retreat from equities. Commodities and currency were too volatile for investors, so the obvious choice was bonds, sovereign debt and certificates of deposits.
The fund was launched just as the local and global economy started on its downward spiral and investors in both local currency and foreign denominated funds started to look for new options. The economic crisis forced investors to withdraw from traditional equities, currency and commodities. "This influx of cash on the market, together with the plethora of stimulus programmes across the globe, prompted the authorities to mop up excess liquidity by issuing bonds. "This created new opportunities for fixed income investors that did not exist before. "The fund's main objective is to generate returns superior to all TT-dollar registered money market funds in T&T–while providing an acceptable level of risk–and I believe that we have more than done this with El Tucuche. It fits in well with the Caribbean psyche, as we have a culture of buying and holding on to our assets. A fund like this, where the benefits will accrue even faster over the long haul, is very attractive to both individual and institutional investors in the Caribbean. This is our kind of thing.
"The governance structure of the fund also gives it an extra edge and appeal for Caribbean investors. It fits into our culture of 'buy and hold' for quality instruments. "We do not act hastily. We make the effort to research the bond and evaluate our position before we begin the process of recommending and purchasing financial instruments. "The main reason for this process is to ensure that our bonds–which will be long-term acquisitions–are quality paper that meets our requirement of investment grade with reasonable return. This cuts off many opportunities that provide higher returns, but their long-term options for capital appreciation and interest may be uncertain. Sovereign debt is preferred, and in the Caribbean, Trinidad's debt is the most desirable." Briggs said the El Tucuche Fund is built to accommodate medium- to long-term needs and is designed to cater for investors with a low- to moderate-risk tolerance. The fund will invest at least 80 per cent of its assets into fixed income, debt securities, which include certificates of deposits and bonds.
No part of the fund is invested in equities and, as such, the fund managers believe it will be insulated from the risks attached to investing in stocks and equities. Bringing income and capital appreciation together, the fund has returned 16.42 per cent since its inception, with similar year-on-year annualised return up to October 31. When compared to other funds, the El Tucuche is still small at $42.8 million, but this is still more than double the size from last year at just $15 million. Briggs said apart from the sputtering economy, the fund was also boosted by the CL Financial bailout crisis. "After investors got burnt, they got wary of the high risk of commodities, corporate bonds and annuities. "Cash and other accounts that were transferred from CL Financial and Clico Investment Bank (CIB) were channelled into the suite of First Citizens Asset Management funds. There is still a lot of cash out there, and as investors see the type of performance we are able to provide at very acceptable risk, I believe those funds will eventually end up in the El Tucuche," Briggs said. "There are also some bond issues being planned to deal with the excess liquidity in the local banking system, which will make the El Tucuche Fund even more attractive to investors as we move forward."
