fortress quarterly sept 2017 - fortressfund.com · our quarterly reporting, audits and preparation...

Dear fellow investors,

The third quarter was another strong one for the Fortress funds – they all posted healthy gains and registered new highs in net asset value per share. Global equities continued to rally, and Caribbean markets also enjoyed positive performance. While market risks are growing as share prices rise, under the surface we continue to find reasonably valued investments to make, with expected returns that are attractive, though almost certainly lower than what we have seen in the last year. You can read more about performance and positioning in the accompanying reports.

For the past seven years this has been the time of year where we anticipate the Fortress Investment Forum in November. This year, though, we are trying something a little new – moving the date to early in the year. We’ve found in recent years that the confluence of our quarterly reporting, audits and preparation of annual reports, along with simultaneously planning the Investment Forum, especially as it grew in size and scope, was causing us to lose more hair than was strictly necessary. So, moving to a “quieter” time of year, the 8th Annual Fortress Investment Forum will be held the evening of Thursday, March 8, 2018 at the Frank Collymore Hall. We hope the new time of year will be convenient for you and that you can mark your calendar and plan to join us for what has become a great annual event.

As always, please let us know if you have any feedback or questions. Thank you very much for investing with us.

Sincerely,Fortress Fund Managers

THE CARIBBEAN GROWTH FUND gained 3.2% in the third quarter and 12.5% over the past year. Share prices gained in Jamaica and in most global markets.

THE CARIBBEANHIGH INTEREST FUNDreturned 0.5% during the third quarter and 2.4% over the past year. Government of Barbados bonds were downgraded again.

OF INTEREST THIS QUARTER:

SEPTEMBER 2017 QUARTERLY REPORT

THE CARIBBEAN PENSION FUND returned between 0.8%and 2.5% across three share classes during the third quarter and between 3.5% and 9.9% over the past year. Equity returns continued to be strong.

Come run, walk or cheer!This year’s Cave Shepherd & Co. Run Barbados Marathon Weekend,

features six race events from December 1-3, 2017.

THE FORTRESS HALF MARATHON WILL SET OFF AT 5:00 A.M. ON DECEMBER 3RD.

We love supporting the half marathon because just like saving forthe future, it’s a big project you can accomplish one step at a time!

Come out and join us in December and run, walk or cheer for Run Barbados Weekend!.

The Fund gained 3.2% during the third quarter of 2017 and is up 12.5% over the past year. The net asset value (NAV) finished September 29 at $5.7410. Net assets of the Fund were $454 million. The Fund’s annual compound rate of return since inception in 1996 is now 8.8% per year. Its portfolio remains well diversified by security, geography and currency.

Several Caribbean shares posted gains during the quarter, outpacing any marginal improvements in earnings or economic conditions that may be occurring. In Barbados, Goddard Enterprises rose 10% and Cable & Wireless gained as it completed an amalgamation that cleaned up its remaining float on the Barbados Stock Exchange. This clean-up brought a gain for the Fund’s 1% position in the stock, but unfortunately also brought an inflow of cash that will be di�cult to reinvest in the current environment. The potential losses in a di�cult hurricane season put some pressure on the shares of insurance companies with Caribbean-wide operations. Sagicor was unchanged in Barbados but su�ered a 4% fall in price on the Trinidad Stock Exchange where trading volumes were a lot higher during the quarter. Guardian declined approximately 10%. Stress continued to build on the Trinidad dollar, as foreign currency there and elsewhere in the region remained more scarce than normal, limiting the opportunities for cross-border trade. The Trinidad budget brought bad news and expectations for increased taxes and cuts in spending. Jamaica remained a relative bright spot in the Caribbean financial markets, with the Jamaican dollar strengthening slightly and some shares trading substantially higher. The Fund’s holdings in Pan-Jamaican Investment Trust and National Commercial Bank Jamaica contributed to returns, up 20% and 27% respectively during the quarter.

Global stocks continued to show broad-based strength in the third quarter as economic growth in most regions brought gains in corporate earnings. The Fund’s positions in international and emerging markets contributed to the gains during the quarter, with the largest allocations to Fortress International Equity Fund and Fortress Emerging Markets Fund each returning 6% during the quarter. Interest rates rose during the quarter, with the U.S. Federal Reserve (Fed) upping its target rate 0.25% and announcing steps to unwind other stimulus, and the European Central Bank hinting at similar moves soon if the economy continues improving. With less support from ultra-low interest rates, corporate earnings will need to continue growing to drive further share price gains. So far this is happening – but there are no guarantees. Shares in international and emerging markets are still reasonably valued, but we believe those in the U.S. are significantly pricier and therefore have lower expected returns. The Fund continues to focus its global investments in markets outside the U.S. and to carry su�cient cash to invest on market weakness.

The Fund returned 3.2% for the third quarter and 12.5% over the past year. Gains in Jamaican and global holdings were the largest contributors.Economic fundamentals remained lacklustre in the Caribbean, but were stronger and saw improvement in most other areas of the world.


EXPENSESManager: 1.75% per annum of net assetsCustodian: 0.0875% on first $30M in net assets0.075% on amounts over $30M in net assetsAdministrator: 0.10% on the first $30M in net assets0.0875% on amounts over $30M in net assetsRedemption Charge: noneInitial Charges: 2%

DIRECTORSSir Geo�rey Cave, ChairmanDavid BynoeKen EmerySir Fred GollopJohn HowardDavid SimpsonJohn WilliamsRoger Cave, Investment Manager

Caribbean Growth Fund

HIGHLIGHTS:• •

MANAGER & ADMINISTRATORFortress Fund Managers Ltd.

CUSTODIANCIBC FirstCaribbean International BankWealth Management Division

AUDITORSErnst & Young

ATTORNEY-AT-LAWSir Henry deB. Forde, K.A., Q.C.Juris Chambers

Please see our Fund Prospectus for further important information.

FUND OBJECTIVE

Capital growth over the long term. The Fund uses a value approach to invest primarily in Caribbean and international equities.

Minimum Investment $100Net Asset Value per share $5.7410Fund Net Assets $453,805,998Fund Inception Dec 9, 1996

INVESTMENT RETURNS

TOP 5 HOLDINGS Holding1. Fortress International Equity Fund2. Fortress Emerging Markets Fund3. Fortress Income Builder Intl Fund4. Fortress OAM Overseas Fund5. Fortress Income Builder US Fund

Country/RegionInternationalInternationalInternationalEurope/AsiaUS

NAV SINCE INCEPTION TO SEPTEMBER 29TH, 2017

Annual compound returnsince inception: 8.8%

GEOGRAPHICAL DISTRIBUTION OF PORTFOLIO

BARBADOS 19%

TRINIDAD & TOBAGO 3%

JAMAICA 6%

OTHER CARIBBEAN 4%

BERMUDA 1%

INTERNATIONAL 67%1%

4%

67%

19%

3%

6%

1996

1997

1998

1999

200

020

01

200

220

03

200

420

05

200

620

07

200

820

09

2010

2011

2012

2013

2014

2015

2016

2017

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

3 Mo 1 Yr 3 Yrs 5 Yrs Incept.

Fortress 3.2% 12.5% 6.0% 4.2% 8.8%Jamaica 10.7% 57.3% 46.5% 15.8% 7.4%

Trinidad 2.7% 6.7% 0.7% 2.1% 11.5%

Barbados 6.2% 21.2% 13.3% -0.5% 5.3%

Global Index 5.0% 18.8% 8.3% 11.6% 8.1%

*periods longer than 1 year are annual compound returns


EXPENSESManager: 0.75% per annumCustodian & Administrator: 0.20% on first $30M in net assets0.175% on next $50M in net assets0.15% on amounts over $80M in net assetsRedemption Charge:2% for funds held less than 6 monthsUp to 1% for funds held less than 6 months - 2 yearsNil after 2 yearsInitial Charges: none

DIRECTORSSir Geo�rey Cave, ChairmanDavid BynoeKen EmerySir Fred GollopJohn HowardDavid SimpsonJohn WilliamsRoger Cave, Investment Manager

MANAGER & ADMINISTRATORFortress Fund Managers Ltd.



ATTORNEY-AT-LAWSir Henry deB. Forde, K.A., Q.C.Juris Chambers

The Fund returned 0.5% during the third quarter of 2017 and is up 2.4% over the past year. The net asset value (NAV) of the Fund’s Accumulation share finished at $1.9600 as of September 29, while the Distribution share finished at $1.0109. Net assets of the Fund were $127 million. The Fund’s annual compound rate of return since inception in 2002 is now 4.5% per year. Its portfolio remains as diversified as possible across various issuers, industries, geographies and terms to maturity.

The Fund generated a creditable return during the quarter while conditions remained challenging for fixed income investors. Poor creditworthiness in Caribbean government bonds continued to cause us to carry more cash than normal, and very low interest rates in global markets limited potential returns. In September the bond rating agency Standard & Poor’s downgraded Government of Barbados local currency bonds again to “CCC” from “CCC+”, with a negative outlook. According to S&P’s rating scale, this corresponds to a bond that is “…currently vulnerable to non-payment and is dependent upon favourable business, financial and economic conditions for the obligor to meet its financial commitments.” In other words, there is little room for error, if revenues do not meet expectations or if foreign currency reserves do not increase. Investors in the US$ Barbados global bonds pushed prices higher through much of the past few months. This is likely based on the belief that a critical fiscal situation would lead to an IMF programme and therefore greater certainty around the repayment of the foreign debt, at the expense of domestic lenders and bondholders. The Fund continues to have only minimal exposure in this area. U.S. bond yields were little changed during the quarter, with 10-year Treasury yields rising from 2.30% to 2.33%. Corporate bonds performed well and this added to the Fund’s returns. The U.S. Fed raised its target rate in September, and announced steps to begin unwinding its multi-year “quantitative easing” programme. This came against a backdrop of positive economic data, nearly full employment and upward wage pressures. In the coming months there will be more bonds to be absorbed by investors and interest rates will likely be rising, we hope gradually. The Fed has kept enormous monetary stimulus in place well past the point where economic data suggested it was necessary. It now faces a strong economy near capacity and lots of ground to make up. We continue to keep a relatively short average term to maturity in the Fund’s portfolio to limit sensitivity to rising rates. The average gross yield of the portfolio is just over 3%, a good estimate of the medium-term return potential for the Fund. Higher global interest rates and a resolution to the Caribbean debt situation will eventually lead to higher expected returns for the Fund; for now, we remain conservatively positioned and squarely in capital preservation mode.

The Fund returned 0.5% for the third quarter and 2.4% over the past year.Government of Barbados bonds were downgraded again and the U.S. Federal Reserve (Fed) raised interest rates.

Caribbean High Interest Fund

HIGHLIGHTS:• •


FUND OBJECTIVE

Income and capital preservation over the medium term. The Fund actively invests in a diversified portfolio of primarily Caribbean and international debt securities.

Minimum Investment $500Net Asset Value per share $1.9600 / $1.0109Fund Net Assets $127,357,792Fund Inception May 17, 2002

INVESTMENT RETURNS

0.5% 2.4% 2.2% 2.5% 4.5%*periods longer than 1 year are annual compound returns

3 Months 1 Year 3 Years 5 Years Inception

GEOGRAPHICAL DISTRIBUTION OF PORTFOLIO

BARBADOS 54%

TRINIDAD 0%

EAST CARIBBEAN 0%

JAMAICA 1%

INTERNATIONAL 45%

TOP 5 HOLDINGS

Holding1. Legg Mason Asian Opportunities Debt Fund2. PIMCO Global Investment Grade Credit Fund3. Franklin Templeton Global Bond Fund4. GEL 4.5% 30 Nov 20175. Stallion Property 5% 31 Dec 2021

CountryInternationalGlobalGlobalBarbadosBarbados


1%

45%

54%

Annual compound returnsince inception: 4.5%

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

2017

2.0

1.8

1.6

1.4

1.2

1.0

0.8


Investors in the Pension Fund typically select from three di�erent classes of share, based on personal circumstances and risk tolerance. These classes di�er in how their assets are spread across the major asset classes of equities, bonds, and real estate and other assets. The graphs below show how each of the classes (AA, CC, CS) is allocated currently. The reports on the Caribbean Growth Fund and Caribbean High Interest Fund on pages two and three of this quarterly report give you a direct look into the performance, positioning and outlook for the major underlying investments in the Pension Fund.

Caribbean Pension Fund

HIGHLIGHTS:Shares of the Pension Fund returned between 0.8% and 2.5% across three share classes in the third quarter and are up between 3.5% and 9.9% over the past year. Our equity investments continued to generate strong performance.

•

Returns by class of share are shown in the table to the right. •

FORTRESS FUND MANAGERS LTD., FIRST FLOOR, CARLISLE HOUSE, HINCKS STREET, BRIDGETOWN, BB11144, BARBADOSTEL: (246) 431-2198 FAX: (246) 431-0514 • [email protected] • www.fortressfund.com

FUND OBJECTIVE

Capital growth, income and security over the long term, as appropriate to each class of share. The Fund invests in equities, fixed income, and real estate assets primarily via the other Fortress funds.

Net Asset ValuePer Share (est.): $24.22 / $23.92 / $17.45 (AA/CC/CS) Fund Net Assets: $282,311,199

BENEFITS AT A GLANCE

Company Pension (DC Scheme):• Choose from three easy, professionally managed options to get the class of share that suits you.• 25% of your pension can be withdrawn tax free at retirement.• Employers match employee contributions up to certain amounts.

Personal Pension (RRSP):• Choose from the same three easy, professionally managed options to get the class of share that suits you; or pick your mix of Fortress funds.• Up to $25,000 may be withdrawn tax free for the purchase of a first house.• Flexibility to withdraw funds as necessary, provided tax paid in year of withdrawal.

Fortress is a leading provider of DB and DC pension management and administration services to companies of all sizes, and to individuals via the Personal Pension Plan (RRSP).

EXPENSESManager: 0.50% per annum of net assets at the Fund level. Fees from the underlying Fortress funds in which the Fund invests are capped at between 0.25% and 0.50% per annum of net assets, depending on the fund.Custodian: $7,500 per year paid by the Fund as a whole.Administrator: 0.03% per annum.Sales Charge: NoneRedemption Charge: none

MANAGER & ADMINISTRATORFortress Fund Managers Ltd

DIRECTORSSir Geo�rey Cave, ChairmanDavid BynoeRené DelmasKen EmerySir Fred GollopJohn HowardDesmond KinchDavid SimpsonJohn WilliamsRoger Cave, Investment Manager




ATTORNEY-AT-LAWSir Henry deB. Forde, K.A., Q.C.Juris Chambers.

AGGRESSIVE ACCUMULATOR (AA)

EQUITIES 75%FIXED INCOME 23%REAL ESTATE/OTHER 2%

EQUITIES 60%FIXED INCOME 39%REAL ESTATE/OTHER 1%

EQUITIES 11%FIXED INCOME 89%REAL ESTATE/OTHER <1%

75%

23%

2%CONSERVATIVE CONSOLIDATOR (CC)

60%

39%

1%CAPITAL SECURE (CS)

89%

11%

<1%

INVESTMENT RETURNS

*periods longer than 1 year are annual compound returns

3 Mo 1 Yr 3 Yrs 5 Yrs Incept.

2.5%2.2%

AA ShareCC ShareCS Share 0.8%

9.9%8.6%3.5%

5.4%4.8%2.6%

4.3%4.1%2.7%

5.9%5.9%3.9%


AA SHARECC SHARECS SHARE

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

2017

26.0

24.0

22.0

20.0

18.0

16.0

14.0

12.0

10.0

8.0

Have you ever wondered why your PAYE and NIS deductions are taken at source (i.e. by your payroll department) and paid over to Government directly? The reason is simple: there is a significantly better chance that the money will be paid this way. Imagine if instead the Government relied on thousands of individuals like us to ensure we have budgeted adequately to have the su�cient funds left at the end of the month to make these statutory payments, and to send them along if we do.

We can use this same “direct deduction” concept to our benefit when saving for the future. It is called “paying yourself first”, and experts agree it’s one of the most powerful tools for setting aside money. Saving for a long-term goal - retirement, a car, a home, anything - can be di�cult if we use the method of “wait and see”, only setting aside surplus funds at the end of the week or month, if there are any. Experience shows that it just does not happen. The solution is to pay yourself first: just like the statutory deductions, set up an automatic deduction (either from your payroll or through your bank or credit union account) every month and direct that payment directly to your retirement or savings account. On auto-pilot the money simply accumulates and grows over the years. Try it - it is simple and it works.

fortress quarterly sept 2017 - fortressfund.com · our quarterly reporting, audits and preparation...

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