November 21st, 2013

Managing Risk and Return


“I am more concerned about the return of my money, than the return on my money.”  Mark Twain. This quote from the celebrated US author still rings true today. In today’s volatile environment investors want continuous assurance that their investments are not jeopardized by frivolous and uninformed decisions or driven by unreasonable promises of quick returns.

Like life, saving and investing are full of risks.   What you want to do is mitigate those risks. In reading about investments, you’ve probably encountered the terms “risk” and “return” and wondered what they mean.  Risk is the chance of loss on your investment while return is the income or gain you receive on your investment.  For us at the Unit Trust, our focus is to manage risk in a way that investors have the best opportunity for consistent, competitive returns. We take this responsibility very seriously.

Investors should appreciate that time is a crucial element when it comes to a successful investment strategy; it is about exercising due patience and not over-reacting to each and every fluctuation in the environment or making whimsical decisions.  For over thirty years, patience has been at the core of our operations and embedded in our philosophy to provide investors with peace of mind regarding their investments. Today, we continue to do so even in a challenging environment.

A key factor in investments is diversification that can provide the right mix of risk versus return.  The broader your diversification, the more favourable your balance between risk and return which must be factored into each investor’s portfolio. By investing in more than one asset category, the Unit Trust reduces the risk to your investment portfolio and ultimately the potential for losses.  If one asset category’s investment return  falls, the investor may be in a position to offset that outcome with better investment returns in another asset category.  By not putting all eggs in one basket, we are able to limit  losses and reduce the fluctuations in investment returns.

Our goal is value creation for our unit holders. Most of our funds have delivered value in the form of rates of return that are competitive with other funds in their respective market categories over the years.   In fact, several of our funds, including the Growth and Income Fund, the North American Fund and the Universal Retirement Fund have outperformed the market year to date with 9.03%, 10.57% and 11.56% respectively.

In addition to affording investors protection of capital in our three largest funds, we are the only collective investment schemeprovider that is mandated by law to never exceed more than 10 percent holding in any one issuer. This means that our investment strategy would avoid the levels of concentration that could impact negatively on the portfolio and unsettle investors. Our policy is to remain conservative towards risk-taking and continue to deliver on our mission of providing safety, strength and stability to our investors.

A common misconception among investors is that higher risk equals greater return.  On the other side of that coin is that just as risk means higher potential returns, it also means higher potential losses.  Determining what risk level is most appropriate for any investor isn’t found in any formula. Risk tolerance differs from person to person and your decision will depend on your goals, whether short, medium or long-term, financial condition and life situation.  

Our investment professionals are well aware of the various stages of the economic cycles and seek to capitalize on opportunities that arise as well as implement techniques to mitigate risks  to help investors to continue to save effectively and generate wealth in a manner that reduces risk and ensures long term viability.

Getting risk into perspective is difficult, but it’s something you must do if you want to achieve the proper balance between risk and return. It’s a simple and unavoidable fact that the value of your investments will fluctuate. So you need to assess your tolerance for risk.  At the Unit Trust, our fund managers can have a portfolio constructed to reflect a range of risk and reward profiles that is suitable to your investment profile.  

The Unit Trust will never seek out riskier than usual investments in order to get a high return.  We continue to be guided by our unitholders’ preference for conservatismin this risky global economic environment, the preservation of capital is paramount before any investment that could risk their wealth.

Disclaimer : Performance is subject to variations and is likely to change over time. Past performance should not be treated as an indicator of future performance. Important information concerning the investment goals, risks, charges and expenses is contained in the prospectus.  Investors should carefully consider these before investing. Obtain a prospectus from our website or at any of our UTC Investment Centres and read carefully  before investing.