Scotia Investments Jamaica Limited (SIJL) has introduced the US dollar and Jamaican dollar Premium Short-Term Income Funds to its suite of unit trust products as it aims to bridge the gap in its product offerings while offering clients better yields at lower risk.

“We made the funds available — we call it a soft launch — in November. A launch to the public really started this (last) week. It was on the platform, so clients that came in could see it,” Brian Frazer, chief investment officer and vice-president at SIJL informed Jamaica Observer.

Launched on January 12, 2021, SIJL’s Premium Short-Term Income Funds have no minimum holding period. The minimum initial investment in the US dollar-denominated fund is US$1,000 with increments of US$100 thereafter. On the other hand, customers can invest in the Jamaican dollar fund with $150,000 at start-up and can afterwards increase their units with purchases of $15,000 or more.

Both funds are invested in fixed income assets including Government of Jamaica bonds in Jamaican and US dollars.

Frazer pointed that the rationale for creating the products was to provide clients with another option to diversify their portfolio.

“One of the main things we emphasise is the need to have a diverse portfolio. So, in addition to stocks and bonds, we also try to ensure that we have a suite of mutual products to help our clients diversify their portfolio,” he explained.

With the addition of the two Premium Short-Term Income Funds, SIJL now has 12 products in its suite of mutual funds and/or unit trusts. On the US dollar side, Frazer said, the company has a 92 per cent market share with US$322 million in assets under management. SIJL had $70 billion in funds under management (FUM) related to unit trusts and mutual funds up to October 2020.

However, as volatility in the local and international equities markets resulted in lower yields of equity-based unit trust funds, SIJL saw an opportunity to create the new funds to provide clients with better yields over a short tenure of investing.

“In terms of the new funds, when we developed these new funds — it’s part of our product development philosophy that we look at our customers’ needs and the current environment. So at the time when we were developing those funds, we were seeing an environment where we were going through an economic recovery and rates were pretty low at the time,” Frazer told Business Observer.

At that time, he said, clients were looking for safer investments with more returns. While money market funds are short term, they didn’t offer the rates clients wanted. Moreover, whereas fixed income funds offered better rates, Frazer said they were more risky, for a longer tenure, and “when rates increased, most of the fixed-income funds suffered during that time”.

To this end, the Short-Term Income Funds are a middle market solution

“So, the clients wanted something not as long as the regular fixed income funds with longer duration, but not as short as money market funds because they weren’t getting anything on them. So, because of that, that’s when we developed these two funds — a Short-Term Income Fund for the US dollar and a Short-Term Income Fund for the Jamaican dollar,” the SIJL vice-president said.

“The value proposition is really for customers seeking higher potential return in J$ and US$ but they still want it on the lower risk spectrum. They want better yields than the traditional money market [offers],” he added.

Frazer also disclosed that the funds also “supplement the product shelf and close the [product] gap” at SIJL.

For financial year ended October 31, 2021, SIJL’s revenues climbed 16 per cent to $3.33 billion while profit before tax rose six per cent to $1.99 billion. The asset management portfolio increased by six per cent or $11.4 billion owing to the performance of the funds and stock market. The Scotia Premium Growth Fund was among the best-performing equity funds in 2021 as it returned 9.30 per cent, Frazer pointed out

Funds under managment in the overall securities industry topped $1.42 trillion at the end of June 2021, according to data from the Financial Services Commission.

The roll-out of the new products in November coincided with the Bank of Jamaica increasing its policy rate from 1.5 per cent to 2.0 per cent. The central bank again increased the rate in December to 2.5 per cent.

With this in mind, Frazer believes the official launch of the products is timely and will augur well for investors.

“Since we conceptualised the funds, interest rates increased locally and internationally to try to manage inflation. So the yields on these funds will be higher based on that fact,” he stated, adding that the funds are even more “relevant” now.

— David Rose and Josimar Scott