QWI Investments Limited’s performance for the first six months (October to March) of its 2022 financial year (FY) slowed as its total investment income declined by 15 per cent to $226.15 million due its overseas holdings delivering unrealised losses while the Jamaican holdings returned smaller gains during the period.
The investment holding company derives income through the buying and selling of securities on the Jamaica Stock Exchange (JSE), Trinidad and Tobago Stock Exchange (TTSE) and stock exchanges in the United States of America.
While its overseas portfolio holdings delivered larger realised gains than the Jamaican investments in 2021, the script has been totally flipped with the Jamaican portfolio realising the company $30.09 million, nearly quadruple the $7.51 million from the overseas holdings. The overseas portfolio had an unrealised loss of $10.42 million relative to the $21.92 million unrealised gain in 2021. The Jamaican portfolio had $156.83 million in unrealised gains which was 18 per cent lower than the prior period. Dividend and interest income totalled $18.14 million for the period.
“The sharp increases in inflation and interest rates now taking place could impact the prices of investments and securities negatively over the next two years. Indications are that our holdings will continue to perform well over the balance of the fiscal year and we remain cautiously optimistic. The company’s portfolio is reviewed on an ongoing basis with changes as the nvestment committee believes will be advantageous to QWI,” the shareholder report stated.
After accounting for a 96 per cent rise in total expenses to $72.11 million due to accruals payable as management fees to the investment committee, the company’s profit before taxation came in 33 per cent lower at $154.04 million. The company’s net profit was 29 per cent lower at $121.72 million with an earnings per share of $0.09. The company’s net asset value increased by six per cent to $1.39 after accounting for the $0.035 dividend paid on April 7.
QWI’s fortunes in the US market have continued to decrease since the start of the FY. In the first quarter, QWI eliminated the use of leverage and held some of its investments in cash based on the choppy nature of the market. January saw most of the QWI’s unrealised $53 million loss due to the sharp fall in the large cap technology stocks. The company then sold 23 per cent of its investments in the US market in February based on the conflict in Ukraine and rising inflation. The proceeds went to pay down part of the margin loan balance with the remaining proceeds subject to reinvestment.
As a result of the company’s portfolio performance not surpassing the MSCI ACWI All Cap Index since listing, it is looking to change the index used for its hurdle rate at its July 19 extraordinary general meeting (EGM). The company’s investment committee currently is entitled to receive 10 per cent of the net investment return (NIR) in excess of the company’s hurdle rate. The hurdle rate is the percentage change in the MSCI index corresponding to the incentive period on the company’s average investments. The NIR is the total realised and unrealised gains of the company less any finance costs incurred by the company to fund the investments that produced the realised and unrealised gains.
The investment committee is comprised of chairman John Jackson, David Stephens and Cameron Burnet. The JSE Index gained nine per cent in the company’s FY while the MSCI ACWI Index gained 26.4 per cent. This was above the 24 per cent change in its net asset value (NAV) from $1.08 to $1.34. 75 per cent of QWI’s $2.28 billion investment portfolio was based in Jamaica while the rest of the holdings are overseas.
The new hurdle would be the JSE Combined Index and the company’s investment incentive plan would be adjusted to include three items. This includes each member of the committee being paid a fixed $2.5-million fee, a fixed annual fee equal to 0.2 per cent of the net value of the portfolio paid among the committee members and an annual incentive fee of seven per cent above the hurdle rate to be paid among the members. The aggregate fees wouldn’t surpass three per cent of the company’s NAV in any one FY. The company is also proposing at its annual general meeting (AGM) to have a share buyback plan on the open market and also conclude the adjourned 2021 EGM and AGM.
The MSCI ACWI Index increased by 0.29 per cent for the first six months but has fallen by 15 per cent in the last two months while QWI’s NAV has increased to $1.41 as of May 6. The JSE Combined Index has risen by 3.33 per cent up to May 11. QWI’s investment portfolio was valued at $2.3 billion as of March with 78 per cent of it being in Jamaican equities. Shareholder’s equity stood at $1.90 billion. The company’s share price is up two per cent year to date to $0.91 which leaves it with a market capitalisation of $1.24 billion.