Investors in Sagicor Select Funds Limited (SSFL) will meet on August 19 in a hybrid meeting to vote on the potential conversion of their shares into a unit trust, which could be listed on the Jamaica Stock Exchange (JSE).

The move takes place four months after Sagicor Select Funds announced that it had applied to the Supreme Court to convene a meeting for a court-approved scheme of arrangement. The proposed scheme would see investors interest/shares in the two listed equity funds converted in a unit trust, which is a collective investment scheme (CIS), whereby they could redeem/sell their units at the prevailing net asset value (NAV).

NAV is the value of a fund’s assets minus the value of its liabilities divided by the number of shares outstanding. It is the price at which the fund shares are traded and used to measure fund performance and value.

The scheme meeting will be held at 12:30 pm in a hybrid format, with the Sagicor Auditorium at the R Danny William Building serving as the main physical venue. Investors that plan to attend virtually can join via https://iteneri.com/sagicor. The company’s annual general meeting (AGM) will also be held on the same day at 9:30 am.

“If one class of Fund Stockholders vote by the requisite majorities to approve the Scheme and the other class of Fund Stockholders vote not to approve their Scheme, then the application to the Court to sanction a Scheme would be made in respect of the Fund for which approval was given, and if the Court sanctions that Scheme the relevant Fund would be converted to a unit trust. The other Fund which did not receive approval for its Fund Stockholders would not be converted and would remain as a Fund under the Company,” the explanatory document stated.

Sagicor Select Funds was formed in January 2019 to allow investors to gain exposure to a fund that tracked the performance of specific sector indices on the JSE. For example, SelectF, or the class B shares, track the performance of the JSE Financial Index, while SelectMD, or the class C shares, tracks the performance of the JSE Manufacturing and Distribution Index. The fund is rebalanced or adjusted to reflect the weight of the corresponding shares in the sector index.

The Class B redeemable participating voting shares represent an interest in the Financial Select Fund (SelectF), while the Class C redeemable participating voting shares represent an interest in the Sagicor Manufacturing and Distribution Select Fund (SelectMD). Sagicor Investments Jamaica Limited (SIJL) as the investment manager of both funds holds the class A or special share.

Both SelectF and SelectMD listed at $1 in August and November 2019, with SelectF peaking at $1.98 four days after listing, while SelectMD peaked on listing day at $1.16. However, since that period, both unit trusts have traded below their listing price and NAV. SelectF closed Tuesday at $0.44, but its NAV was $0.536. SelectMD closed Tuesday at $0.80, but its NAV was $1.216. Both funds last paid dividends in December 2023.

Under most unit trusts, investors can redeem their units at the NAV subject to any potential fees for an early exit. However, under the current dispensation, investors who want to realise the value of their shares in SelectF or SelectMD would have to sell at the market prevailing price, which is below the NAV.

The directors of Sagicor Select Funds believe that the conversion to a unit trust would better serve investors who would be able to realise their value at the NAV. The new unit trust would be non-diversified and more actively managed by the fund manager. The unit trust would consist of an appropriate mix of listed companies in the financial sector and manufacturing and distribution sector.

However, whereas most unit trusts are relatively private, Sagicor Select Funds has indicated that it would want to list the unit trusts on the JSE, subject to the consent of the JSE listing committee. Sagicor Investments Jamaica Limited is the largest unit trust manager in Jamaica, with $153.57 billion in asset under management.

“If a Corresponding Unit Trust is listed on the JSE or if both are listed simultaneously, such listed unit trust or unit trusts would become the first CIS(s) to be traded on the JSE — that is to say it would become an “Exchange Traded CIS”. This would mean that a unit trust holder wishing to redeem his units would apply to the manager [Sagicor Investments Jamaica],” the document added.

The document also explained that the redemption of units could involve listing the units on the JSE at the NAV or prevailing exchange traded price with a range up or below five per cent.

However, the new unit trusts would have certain conditions included after their official launch. If unitholders make a redemption request during the first six months after the launch, an early exit fee of up to four per cent could be applied. The fund manager can also declare bottleneck periods if there are requests for redemption exceeding 15 per cent of the NAV during any seven-day trading period. Those periods could allow the fund manager to implement different measures such as a redemption notice period, lock-up periods, or early exit charges.

JCSD Trustee Services Limited would serve as the trustee of each unit trust and would hold the assets of each unit trust. Each unit trust would be governed by a trust deed. Each unit trust would have an AGM at least once per year for unitholders. Unitholders would be provided with the financials and management discussion and analysis of each unit trust prior to the AGM with dividends and confirmation of the auditors set as agenda items.

The various Sagicor-managed funds and Sagicor Group subsidiaries own 36.35 per cent of SelectF and 80.70 per cent of SelectMD. All of these entities and funds will vote in favour of the scheme. However, the scheme requires the majority of fund stockholders in person or by proxy holding not less than 75 per cent of the votes cast on resolution to vote in favour of each scheme for it to be approved. Each vote for SelectF and SelectMD will be done separately via poll.

Each scheme is conditional on receipt of the requisite majorities at the scheme meeting, the Supreme Court of Jamaica sanctioning each scheme and the Financial Services Commission (FSC) approving the registration of the corresponding unit trust of a fund. The FSC has no objection to the conversion of both funds to unit trusts.

SelectF had $2.99 billion in total assets as of March 31, with shareholders’ equity of $2.97 billion and an NAV of $0.58. SelectF had a net loss of $33.89 million compared to a net profit of $3.12 million in the prior period.

SelectMD had $4.87 billion in total assets as of March 31, with shareholders’ equity of $4.85 billion and an NAV of $1.27. SelectMD had a net profit of $18.69 million compared to a net profit of $46.92 million in the prior period.

“Accordingly, Fund Stockholders in a Fund will lose nothing in the exchange since no value will leave a Fund which is not captured by the Corresponding Unit Trust. Fund Stockholders will benefit from the Scheme because by switching from the Fund to a Corresponding Unit Trust the Trustee of the unit trust will redeem their units at the prevailing NAV per unit less an exit charge,” the document explained on the fairness of the transaction.