Minority shareholders revolted last Wednesday at Sagicor Select Funds Limited’s annual general meeting over their dissatisfaction with the performance of the listed shares.

The AGM which was held at the AC Hotel by Marriott saw investment manager, Sagicor Investments Jamaica Limited, flooded with a myriad of questions around the nature of Select Funds and the reasons for the financial performance of the Class B shares (SelectF) over the last five years.

The event which had more than 70 shareholders present didn’t hold back in criticising the investment managers on the performance of SelectF and the class C shares (SelectMD). This occurred during the hour-long question and answer segment of the AGM, following presentations by Tara Nunes, chief executive officer of Sagicor Investments, and Jodian Aris, assistant vice-president of research & strategy, on the year in review and outlook.

Some questions delved into the sensitivity analysis prepared by the auditors, the risks disclosed in the annual report, true mandate of the Select Funds and dividend income which some believe should be higher. While Aris attempted to quell the fiery storm brewing in the audience, comment after comment came by different investors who were concerned about the position of the listed Select Funds.

Sagicor Select Funds is the first Jamaican listed equity fund that tracks the performance of specific sector focused indices on the Jamaica Stock Exchange (JSE). As a result, SelectF and SelectMD attempt to maintain a composition of stocks in its portfolio that closely resemble the actual weighting of the Financial and Manufacturing and Distribution indices. The financial performance of Select Funds is determined by the market prices of stocks at the end of each day while it earns cash from tax-free dividend income paid by the companies in the portfolio. The net asset value (NAV) represents shareholder’s equity divided by the number of shares and represents the value of the underlying portfolio after accounting for any liabilities.

An index is a tool used to measure the changes in prices of a basket of stocks or other financial securities. The JSE introduced the Financial Index in March 2019 which tracks the performance of stocks designated by the JSE as being in financial services. The JSE later introduced the Manufacturing and Distribution Index in October 2019 to track the performance of companies designated by it as being in the manufacturing and distribution space. Both indices started at an initial base of 100 points with the Financial Index ending the year at 137.55 points while the M&D index ended the year at 99.68 points.

However, on the day of the AGM, the Financial Index closed at 67.33 points while the M&D Index was at 102.92 points. This reduced index performance has translated into the NAV of SelectF at $0.558 and SelectMD’s NAV at $1.048. SelectF and SelectMD’s stock prices were $0.43 and $0.67, respectively, which means they’re trading below the main financial indicator of both listed stocks.

SelectF and SelectMD’s reduced stock price has meant that the more than 25,000 applicants who bought in the initial public offering (IPO) at $1 have seen a sharp reduction in the value of their asset.

In answering the questions of inquisitive shareholders, Aris explained that the respective Select Funds only rebalance their portfolio weightings when it is appropriate based on the availability of shares in the market. She also went on to give further context that some of the major factors which would have been more detrimental to SelectF included the BOJ’s initial restriction on dividends to those who owned more than one per cent of any stock, inflation, and higher interest rates which would weigh on the performance of the equity market. While different companies in SelectMD’s portfolio would have seen some return to normalcy recently, they would have been impacted by higher inflation which would potentially limit the ability to pay greater dividends. COVID-19 impacted the entire stock market in March 2020 and in turn the portfolio holdings of both listed equity funds.

Although the AVP couldn’t give a definitive timeline on when the equity markets should rebound, she noted that inflation has appeared to peak and that interest rates could start to be reduced in the near term which could be a catalyst for improved equity prices. She also pointed out that SelectF’s largest holding of NCB Financial Group Limited (NCBFG) has started to pay dividends again which is a positive development for shareholders.

She also explained that based on NCBFG’s weighting in the financial index relative to SelectF’s portfolio weighting of the same stock, it was not likely that SelectF would participate in the ongoing additional public offering (APO). A comment for SelectMD to do biannual dividend was also taken up for consideration. NCBFG makes up 17.59 per cent of SelectF’s portfolio and currently has a $1.15 billion unrealized loss as per the tracker on the JSE’s website. This is in contrast to the $198.59 million unrealized gain at the end of 2019.

Even with her comments, some shareholders were still not convinced based on their interpretation of the Select Funds. This led to some shareholders voting against the part (a) of the third resolution seeking to have the directors re-elected en bloc.
The development left meeting chair Janene Shaw and the podium members trying to seek a solution.

After receiving advice from Trevor Patterson, it was decided to do the re-election of directors Daniella Silvera and Faith Vincent would be done individually. While there was some resistance by persons voting against the resolution, it was ultimately passed along with all other resolution items.

In North American markets, exchange traded funds (ETFs) are standard investment alternatives for investors who don’t seek to actively invest into different stocks. ETFs such as XLF and SPY track the Financial Sector Index and S&P 500 stock market index with both managed by State Street Global Advisors. Both ETFs are up by more than 34-64 per cent despite the COVID-19 pandemic shock. However, the Jamaican stock market is still trading below its 2019 highs.

SelectF listed in August 2019 after raising $3.98 billion from 20,301 applications while SelectMD listed in December 2019 where it raised $2.71 billion from 5,287 applications. SelectF peaked at $1.98 per share on its third day of listing in August 2019 before ending the year at $1.12. SelectMD peaked at $1.16 on its first day of listing in December 2019 before ending the year at $0.99. SelectF’s net asset value (NAV) was $1.16 while SelectMD’s NAV was $1.03. 2019 was a record year for the JSE as the JSE Index jumped by a third while the Junior Market Index also increased by three per cent.