LAST year was a particularly challenging year. Most countries continue to grapple with the consequences of Covid-19 which crippled many industries, particularly in travel and tourism. Since the imposition of public health regulations and restrictions on movement (otherwise referred to as ‘lockdown’ measures) to contain the spread of the virus, the Trinidad and Tobago Securities and Exchange Commission (TTSEC) began enhanced monitoring of the impacts of Covid-19 on Trinidad and Tobago’s Equity and Collective Investment Schemes (generally known as mutual funds) markets. This article seeks to highlight some of the markets’ performances observed for the year 2020.
Although the major indices suffered losses due to the pandemic, the markets, through their resilience, stymied further losses and remained stable for the latter half of 2020. Figure 1 shows that both the Trinidad and Tobago Stock Exchange (Stock Exchange) Composite and All T&T Indices suffered significant losses during the peak of the lockdown period (March 2020-May 2020) with the Composite Index declining by 224.28 index points (15 per cent) and the All T&T Index by 200.27 index points (10 per cent). shows that during this same period, the Cross-Listed Index suffered losses of 33.87 index points (23 per cent). However, the stock exchange’s Small Medium Enterprises (SME) Index suffered minimal losses during the period with an average loss of 3.43 index points (5 per cent) throughout 2020. Table 1 outlines the performances of the four market indices from January to December 11, 2020.
Mutual fund AUM
After reviewing the changes in Assets Under Management (AUM) for Trinidad and Tobago’s Mutual Fund market, it was observed that the overall AUM fell by 3 per cent from March 2020 to May 2020. The main mutual fund type that was impacted was equity funds, which predominantly invest in local and foreign equities i.e. shares of companies listed on a stock exchange. These losses have since been recovered led by the strong improvement of Fixed Income mutual funds, whose AUMs have increased by 9 per cent since March 2020. Figure 2 displays the AUM from January 2020-November 2020 of the various types of mutual funds within the local securities sector.
Subscriptions and redemptions
Subscription and redemptions in mutual funds refer respectively to sales/purchases and withdrawals. Significant redemptions were observed during the peak of the lock-down (March 2020-May 2020), with investors withdrawing approximately $2.6 billion in March 2020. This is almost double the monthly average redemptions that occurred for the same period in 2019. However, in spite of the high amount of redemptions that occurred in March 2020, the monthly average for this year is 10 per cent less than the monthly average redemptions for 2019. Subscriptions for the different periods did not vary greatly. Table 2 provides more details on subscriptions and redemptions in the local mutual funds industry.
Fixed and floating NAV mutual funds
As the name suggests, with fixed NAV mutual funds, the Net Asset Value (NAV) remains constant. It is usually the responsibility of the mutual fund manager to maintain the value of a unit for both subscriptions and redemptions. Managers of Fixed NAV mutual funds will have more difficulty in maintaining their commitment to ensure the NAV is constant while the portfolio of securities fluctuate in value.
For floating NAV mutual funds, the value of a unit changes based on the performance of the pool of securities. Fixed NAV mutual funds predominantly invest in local and/or foreign fixed income securities or bonds. While floating NAV mutual funds typically invest in local and/or foreign equities/shares.
At the onset of the lock-down the AUM of Floating NAV mutual funds were more impacted than Fixed NAV mutual funds. This may have been mainly due to fluctuating security prices as a result of the current environment. During the period of March 2020 to May 2020, Floating NAV decreased by 8.7 per cent while the value of fixed NAVs declined by 70 basis points (0.7 per cent). Notwithstanding the decline in AUM during March 2020 to May 2020, the latter half of 2020 demonstrated strong growth, as AUM increased by 6 per cent during the period May 2020-November 2020.
We usher in the New Year with a strong and resilient securities market that withstood the challenges the year 2020 brought. As we embark on this journey into 2021, the TTSEC remains committed to the protection of investors and to bolstering confidence in the securities market.
If you would like to develop your knowledge of the securities market, we encourage you to visit our investor education website @ www.investucatett.com. There are free online resources such as brochures, blogs and a budget calculator. We also have a free investor education online course which takes you through nine modules that will lead to a certificate upon completion.
For information on the securities market visit us @ www.ttsec.org.tt or follow us on: Facebook, Twitter, Instagram and YouTube.
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