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Bahamians can tap emerging markets with limited risk

Royal Fidelity Merchant Bank&Trust Limited representatives told The Guardian yesterday that a broad cross section of individual and institutional Bahamian investors could tap into promising emerging markets with a fund 100% principal protected and benchmarked at a 10% return per annum.

However, investors need to understand the investment and the risks involved, according to the company. Royal Fidelity is rolling out its fourth TIGRS fund, with emerging markets forming its biggest component.

“Emerging markets are up 19%over last year,” Michael Anderson, Royal Fidelity’s president said. ”So if you have the chance to gain 5.65%or to gain 19%, which one would you take?”

Joseph Euteneuer, mutual fund manager at Royal Fidelity, said that trends demographically, politically and financially favored emerging markets. According to him emerging market economies underlying the funds have relatively better debt-to-GDP (gross domestic product) ratios than developed markets, and 82% of the world’s population.

“The fund is 60% geared to the emerging market sector because, not just right now but 5 years from now, 10 years from now, for the forseeable future that’s where all the growth is going to be,” Euteneuer said.

Anderson and Euteneuer identified two areas Bahamians considering investing need to be aware of. The first was’opportunity cost’. The fund is 100% principal protected, meaning that at the end of the 5 year fund term, investors will get back their invested principal at the very least, according to the company. If the fund does not perform, investors risk losing whatever interest they could have earned if they had invested the funds elsewhere.

According to promotional literature the principal protection will be from investments”in fixed income securities including fixed interest bonds, medium term notes and/or time deposits issued by Bahamas-based banks.”

Liquidity was the second caveat company representatives mentioned.

“It’s a closed-end fund and the term of the funds is five years so anyone who needs particular liquidity within that period of time it’s probably not suited for,” Euteneuer said.

The fund consists of three indices: The MSCI Emerging Markets Index (60%), the Standard & Poor’s 500 (20%) and the MSCI EAFE Index (20%), according to Royal Fidelity. The MSCI Emerging Markets Index focuses on the equity market performance of some 21 emerging market economies, and Euteneuer said that the net asset value for the MSCI Emerging Markets index was up 9.26 % year-to-date, up 12.85 % one year as at 26 November.

According to literature from the company, the full name of the fund is the Total Index-Linked Global Returns Securities 4 (TIGRS 4). The initial subscription period for the Class N Shares is November 29 through December 10, 2010. The aggregate issue amount is$5 million, and there is a minimum subscription amount of $5,000 plus an initial 2%fee with integral multiples of $1000 thereafter.

“We really have not seen broad participation by institutional investors, so the majority of the investments [in the TIGRS fund series] historically have been sold to individual investors,”Anderson said. Individual Bahamian investors cannot directly access international securities denominated in foreign currencies and institutional investors often seek fixed income products to attain specific returns and meet cash flow requirements.

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