Following a turnaround year where QWI Investments Limited generated $349.76 million in net profit, the investment holding company recorded a net loss of $50.02 million for its 2022 financial year (FY) ending September 30.

This is the second time since QWI was formed in late 2018 that it has incurred a full year loss, with the last time being in 2020 where it generated a net loss of $394.32 million. The company, which invests in listed equities in Jamaica, the United States of America (USA) and Trinidad & Tobago, saw its fortunes turn south after its USA portfolio began to carry greater unrealised losses in the second quarter which continued for the remainder of the year.

The first six months saw QWI record $154.04 million in pre-tax profit, but the full year had a pre-tax loss of $72.69 million. QWI had unrealised losses on its overseas portfolio of $134.98 million compared to the $111.36 million in unrealised gains observed in the Jamaican portfolio for its 2022 FY. The 2022 FY results are unaudited with audited results to be published by December 29.

QWI has since trimmed the USA portfolio and cleared off any margin loans which were used to increase its equity positions there. It has also sold down its position to have sufficient cash that it will deploy again once the investment committee feels it’s the appropriate time to re-enter. The investment committee comprises Chairman John Jackson, David Stephens and Cameron Burnet.

QWI’s local investment portfolio has declined from $1.71 billion to $1.64 billion on a year-over-year basis while its overseas portfolio has shrunk from $571.40 million to $342.72 million. The overall asset base is down eight per cent to $2.13 billion with total liabilities down 17 per cent to $402.40 million. Shareholders equity decreased five per cent to $1.73 billion with the net asset value (NAV) declining from $1.34 to $1.27. However, after accounting for the $0.035 dividend paid in April, the NAV is down 2.7 per cent.

“So, essentially what we have is a situation in which the new investors have been attracted to the Junior Market and they are driving the demand and prices of the Junior Market stocks upwards. That’s not the case with the Main Market stocks as a whole. So, the institutional investors are not in the market to provide adequate liquidity for the market. If they were in the market, the QWI shares net asset value would be greater,” said QWI Chairman Jackson at the company’s annual general meeting on July 19.

The JSE Index was down 13 per cent; Junior Market Index up 28 per cent; JSE Combined Index down ten per cent; S&P 500 down 17 per cent and the MSCI ACWI Index down 22 per cent for QWI’s 2022 FY. QWI’s share price is currently at $0.71 while its NAV as of November 4 is $1.20, a 69 per cent discount to the market price.

QWI’s largest Jamaican holding was Access Financial Services Limited which was valued at $242.04 million or 15 per cent of QWI’s local investment portfolio. Other stocks which make up its top ten include Caribbean Producers Jamaica Limited, GraceKennedy Limited, Stationery and Office Supplies Limited, and JMMB Group Limited. The top-10 positions represent 70 per cent of QWI’s local investment portfolio.

QWI’s largest USA holding was Northop Grumman Corporation valued at US$117,580 ($17.97 million) with the top ten USA positions representing 49 per cent of the overall quoted investments. Other companies in this portfolio include Alphabet, United Rentals, Apple and Lockheed Martin.

When asked why newer investors are generally more attracted to the Junior Market but not institutional investors, Jackson responded, “People have gone into real estate investments; they were investing in US Dollars and pension funds have a lot of Scotia Group and NCB, etc. They are not yet attracted to Junior Market stocks. That will change with time, but it’s going to take a little bit of time.”

Despite the lacklustre performance during the calendar year, QWI believes that its local portfolio is well positioned in stocks that are reporting positive profit performances but trade below market multiples of earnings. It also is taking note of its dividend income which it expects to become more significant in the 2023 FY. The investment committee’s new compensation structure of a $2.5 million fee for each member and a fixed fee of 0.2 per cent of the NAV paid among the committee members will benefit them better amid the shifting market environment.

“The market is not in a bullish way at the moment and because it’s not inclined, you’re going to get investors holding back. Why do I buy a stock today and it’s not going to move for another 12 months? I’d rather keep it in cash to do something else. They may not be right as it might happen in six months, but until we get that interest rate scenario settled where people recognise that the Bank of Jamaica is not going to increase interest rates anymore and are likely to reduce interest rates, you’re going to find values in the market lagging,” Jackson closed on the outlook for the market amid rising interest rates.