Ashford W. Meikle, Sunday Business Coordinator
Glenford McLeish, managing director of JMMB Securities Ltd.
JAMAICA MONEY Market's Select Index Fund began operations in January 2004. The fund invests solely in the companies designated to be part of the JSE Select Index comprising Blue Chip companies.
In the first 14 months of its operations, the fund has returned a surplus of almost $60 million on income of just $73 million, according to its audited financial report to March 31, 2005.
Since its inception, the Select Index Fund has seen a healthy growth in its net asset value (NAV) the quoted shares price which changes daily depending on the stock exchange activity.
JMMB argues that the mutual fund is ideal for investors who have the advantage "of diversification across the top 15 Jamaican stocks by buying a single unit in the fund."
Recently, Sunday Business spoke with managing director, Glenford McLeish, about the success of JMMB's Select Index Fund, its challenges in a weak equities market and its plans for the future.
Sunday Business (SB): Why a mutual fund?
Glenford McLeish (GM): There were two reasons why we set about creating a mutual fund, the most important being client demand.
Our research showed that our conservative/risk-averse clients wanted the wealth-building advantage of investing in the equities market but without the risks that attend direct holding of individual stocks.
Several of their determining investment criteria were that the investment or fund should
Be structured for convenience, diversification and provide solid returns.
Be transparent in its investment strategies.
Be transparent in the companies in which the fund is invested.
SB: What makes the JMMB Select Index Fund unique?
G.M. There a quite a few characteristics of the fund that make it unique.
One is the fact that the fund only invests in the 15 Blue Chip companies on the exchange.
This provides a certain stability for investors since these Blue Chip companies tend to have a strong record of performance many spanning decades proven management teams and deliver steady growth in profits and dividends.
In addition, most of these companies are leaders in their respective industries in Jamaica.
The second factor is the transparency of the fund. Investors in the fund know exactly which companies are in the fund and the relative percentage of that is invested in each. It is also important to us and to our investors in knowing that the companies comprising the index are determined by the Jamaica Stock Exchange (JSE) and not by the fund manager or anyone else.
It is also the first and only stock fund in Jamaica that offers three share classes and the only investable index in the Caribbean.
SB: The fund has seen some decline in its NAV since the start of the year. What would you say to anxious investors especially with a year to date inflation of 10 per cent.
GM: The NAV of the fund is in fact down 13.21 per cent, that is using the January 1, 2005 NAV ($8.74) as the base and September 30, 2005 ($7.58) as the reference point for calculating the price movement.
For many of our fund investors, the current NAV represents as much as a 51.7 per cent growth in the original investment in the fund so that even after inflation at 10 per cent, there is a net real return in excess of 41 per cent.
For those investors with a higher average cost, the decline in the NAV offers an excellent opportunity to acquire additional units in the fund at a discount to their historical average price.
The well-accepted principle of averaging down applies to investments in the fund as much as it does to one's equity holdings.
The approach must, however, be premised upon the understanding that the fund, like equities investments, is a long-term vehicle, say minimum five years.
When this is at the foundation of an investor's approach, short term fluctuations while noticed, do not become a source of concern, but windows of opportunity to increase one's investments.
SB: How do you respond to the criticism that with the fund invested solely in the stock market this is a disadvantage since it is subject to the fluctuations in the market?
GM: In fact, this is the very opposite it is an advantage.
The investor's horizon is the important variable and we at JMMB consistently stress the long term when discussing equities and fund investing with our clients. We seek to align the investment strategy of the investor with that of the fund.
It is proven that over the long-term stock markets out perform other forms of investing and in our market the extent of the difference in performance over the past 20 years is about two times.
A further advantage of the Fund is that the NAV is not dependent on any one stock but on the 15 stocks comprising the index so the risks arising from holding any one stock is therefore removed.
SB: What would you say to potential investors who are unsure or uninformed about investing in mutual funds?
GM: Firstly the Prospectus which is a regulatory requirement, and our marketing material provide all the details on the Fund and how it works. Potential investors are advised to read through these to gain an understanding of the fund and to position them to ask all the questions of us.
These materials aside, the financial advisors in JMMB Securities and throughout the JMMB branch network are available to hold a discussion with potential investors in the Fund.
Secondly [investors] should look at the historical performance of the Fund which generated a 78.3 per cent return for its investors for the year to December 2004. For the fiscal year to March 2005, the Fund net asset growth was 56.04 per cent when the Select Index returned 63.03 per cent.
SB: Are there any other plans to introduce additional mutual funds which are linked, for example, to money market instruments?
GM: There are several plans that the management team is reviewing, whilst others funds are in incubation as we speak. Our number one mantra is how we assist our clients in meeting their goals, to get the best returns subject to risk appetite and investment objectives and so we are always exploring new avenues and methods to do deliver. We are also a regional outfit both in strategy and reach and our next suite of funds will reflect this outlook and strategy.
SB: What plans do you have for foreign currency denominated funds?
GM: We are currently in the process of building a mutual fund that is linked to the Trinidad market and another fund linked to the Barbados market. In addition we are reviewing other international markets and are exploring opportunities for our current and future clients.
