Oran Hall | More pooled investment funds, more opportunities for investors

The unit trust and mutual fund markets are growing. News earlier this month is that Scotia Investments has launched two new funds and that JN Mutual Funds is also to launch two.

Already, there are eight operators of unit trusts, which manage 63 funds; and one mutual fund company, JN Mutual Funds, which operates six funds.

These collective investment schemes are giving investors, including very small ones, a good opportunity to participate in the securities market by investing in diverse portfolios. The principal assets in which these funds invest are equities, real estate, money market instruments, and bonds.

Some funds invest primarily in one asset type: equities, bonds, real estate, for example. Others invest in a mix of assets such as real estate, equities, and interest-bearing securities. Some funds invest in instruments on the Jamaican market, others in instruments in the global market, and others in instruments in both the Jamaican market and the global market.

Sagicor Investments, through its Sigma Global Funds, has been able to combine instruments such that they offer investors a suite of 18 funds.

The benefit of these different types of funds is that they give investors several options and the ability to select funds to match their investment objectives as best as possible. This is important considering that the funds are not customised to the particular needs of any investor. Every person who invests in a particular fund is exposed to the same risk and has the same objective satisfied.

Fixed income funds, those that invest in interest-bearing instruments, dominate the local market. They are lower risk and give more steady returns, being subject to less volatility.

Funds leaning towards equities and real estate focus more on capital growth, and they are more volatile, giving good positive returns sometimes and negative returns at other times, but generally, outpacing the more conservative over the long term.

Based on the reports published in the Financial Gleaner on December 31, 2021 – for December 30 in most cases, December 29 in two cases, and December 28 in one case - five funds generated a negative return over the 12-month period, comprising three fixed income, one real estate, and one equity fund.

The worst-performing fixed income fund, which is US dollar-denominated, returned negative 2.38 per cent, and the best return by a fixed income fund was 12.87 per cent.

The best-performing property fund yielded 10 .04 per cent and the worst, negative 9.35 per cent.

There were six funds – three in the same unit trust – that saw the growth of their unit price increasing by more than 10 per cent, the highest being 14.87 per cent from a global equity US dollar-denominated fund. Another global equity fund saw the price of units increasing by 14.08 per cent. Both funds are a part of the same unit trust.

One other equity fund denominated in US dollars returned 11.43 per cent. The worst-performing equity fund returned negative 3.16 per cent. The local equity funds did not do well due to the lacklustre performance of the Main Market of the Jamaica Stock Exchange in 2021. The returns on the funds described as growth funds ranged from 3.70 per cent (USD-denominated) to 10.51 per cent.

JN Fund Managers and Scotia Investments are clearly responding to the needs of the market by increasing their offerings in a very competitive and growing market.

Having many funds to choose from does increase the options of investors, but it may create a problem when making a selection. Oftentimes, it is not clear in what instruments the funds invest and what proportion is invested in various instruments.

Additionally, it is never easy to compare funds. It is best to compare like with like, but even funds having similar names can be quite different. The management philosophy and the instruments of choice can be quite different, but some investors choose to ignore such considerations, being more interested in fund performance.

What investors should put at the forefront of their minds is that they are not exposed to higher levels of risk than they would be prepared to take if they were making direct investments in the instruments in which the funds invest. The challenge, though, is that they are not always knowledgeable about some of the instruments.

For investors, then, it is a matter of trusting the professional managers, not just to give good returns, but to make safe investments. Ultimately, investors must select funds that have investment objectives that match their own.

- Oran A. Hall, author of ‘Understanding Investments’ and principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel.finviser.jm@gmail.com