SAGICOR Select Funds Limited (SSFunds) filed an application with the Supreme Court of Jamaica Monday seeking permission to convene shareholder meetings regarding the proposed conversion of two of its funds into unit trusts in a bid to deliver better value to shareholders.

The conversion specifically targets two of the company’s investment vehicles — the Sagicor Financial Select Fund and the Sagicor Manufacturing and Distribution Select Fund. Both would transition from their current structure to become unit trusts registered with and regulated by the Financial Services Commission at the end of the conversion.

At the heart of this corporate restructuring is a familiar issue plaguing many listed investment vehicles —shares consistently trading below their actual worth. According to the company’s announcement, Sagicor’s funds have been trading at a “significant discount to their net asset values” on the Jamaica Stock Exchange (JSE).

Net asset value (NAV) represents the actual worth of each share based on all the underlying investments a fund owns, minus any liabilities, divided by the number of shares. Think of it as the “true value” of each share.

In an ideal world, shares would trade at exactly their net asset value. However, reality often diverges from this ideal. Listed investment funds frequently trade at prices that differ from their NAV, resulting in a value gap.

For instance, consider the Sagicor Financial Select Fund. Its true worth, or NAV, stands at $0.579 per share. Yet, the current market price is $0.45 per share, creating a value gap of 22.3 per cent. This means investors are essentially paying only about 78 cents for each dollar of actual value.

A similar disparity exists in the Sagicor Manufacturing and Distribution Select Fund. Here, the NAV is $1.243 per share, while the current market price is $0.83 per share. This translates to a value gap of 33.2 per cent, where investors are paying approximately 67 cents for each dollar of actual value.

This valuation gap effectively means shareholders have been unable to realise the full value of their investments through market trading. The proposed conversion to unit trusts regulated under Jamaica’s Securities (Collective Investment Scheme) Regulations aims to close this troublesome disconnect between market price and underlying asset value.

But the road to conversion involves a carefully orchestrated regulatory process requiring multiple levels of approval. Simultaneously with its court application, Sagicor is preparing documentation for the Financial Services Commission to register the two planned unit trusts. If the Supreme Court authorises the shareholder meetings and investors subsequently approve the conversion by the required majorities, a second court hearing will be necessary to obtain final judicial sanction for the scheme, Sagicor said in its announcement. The transformation would only become effective after receiving court approval and properly filing the order with Jamaica’s registrar of companies.

Despite initiating this significant corporate action, Sagicor has been careful to manage expectations. The company explicitly stated that nothing in its announcement “should be construed as a guarantee” that the conversion will actually take place.

For everyday investors holding shares in these funds, the proposed conversion potentially offers a solution to the frustrating situation of seeing their investments trade below their worth. Unit trusts typically operate with pricing mechanisms more directly tied to underlying asset values, potentially eliminating the discount issue that has plagued the current structure.

Both Sagicor Financial Select Fund and the Sagicor Manufacturing and Distribution Select Fund have shown markedly different financial results in the past year, despite sharing the common challenge of trading at a significant discount to their net asset values on the JSE.

The Financial Select Fund has faced challenges in the past fiscal year, recording a net loss of $9 million for the 12 months ended December 31, 2024. This loss resulted from an unrealised loss on financial assets of $73 million, which was partially offset by dividend income of just under $88 million. Despite these challenges, the fund maintained substantial assets valued at over $3 billion, with financial assets comprising $2.9 billion or 97 per cent of total assets.

The fund’s financial statements reveal that the finance & insurance services industry grew modestly in the third quarter of 2024, showing a 0.8 per cent increase year-over-year, which provided some support to the sector despite Hurricane Beryl contributing to a 3.5 per cent contraction in the broader economy.

In contrast, the Manufacturing and Distribution Select Fund has demonstrated strong performance, recording a substantial net income of $748 million for the year ended December 31, 2024. This represents a 292 per cent increase compared to the previous year. The fund’s total assets reached $4.8 billion, an 18 per cent year-over-year increase, with financial assets comprising $4.6 billion or 94 per cent of total assets.

The performance came despite challenges in the manufacturing sector, which contracted by 4 per cent year-over-year, primarily due to the negative impacts of Hurricane Beryl and temporary closures of several essential facilities. The fund’s financial statements note that its income increased 2.58 times year-over-year to $782 million, driven by a 6.8 times increase in the fair value of financial assets to $629 million.