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May 27th, 2016

Executive Director’s report at AGM

 

 ADDRESS BY THE EXECUTIVE DIRECTOR MR. IAN CHINAPOO ON THE OCCASION OF THE TRINIDAD AND TOBAGO UNIT TRUST CORPORATION’S 34TH ANNUAL GENERAL MEETING HELD ON MAY 24TH, 2016 AT QUEEN’S HALL ST. ANNS, PORT-OF-SPAIN

INTRODUCTION
Thank you Master of Ceremony for your kind words of introduction. Mr. Krishna Boodhai, Chairman of the Unit Trust Corporation, fellow Directors of the Trust, Representative of the Auditor General, Specially invited guests, Members of my Executive Team, Management and Staff of the Corporation, Unitholders, Representatives of the print and electronic media, ladies and gentlemen. I am delighted to welcome you to our 34THAnnual General Meeting.
ent and Staff of the Corporation, Unitholders, Representatives of the print and electronic media, ladies and gentlemen.
I also wish to extent a warm greeting to our online audience streaming this AGM via www.ttutc.com, I trust that you find this meeting very interactive as you too have the opportunity to pose questions to the Board via our UTC Facebook page.

Ladies and gentlemen we meet at an interesting time in the history of the Trinidad and Tobago economy; this is a period of heightened uncertainty for our nation.

We at the Unit Trust Corporation, view this time as a moment of great opportunity. I remind you that the IMF’s 2016 Article IV Consultations revealed that despite the challenges, Trinidad and Tobago’s financial system remains sound.

Whilst this provides some measure of comfort, it ought not to be overlooked that the consultation also underscored the fact that as a country we have under-saved and under invested in our future. The Unit Trust Corporation is fully cognizant of our mandate, to foster a culture of saving and investment through education and innovative solutions that allow everyone access to the capital markets. So our journey continues, we are forging ahead, leading innovation, driving value and redefining our presence in the financial landscape. We are needed more than ever at this time.

We have renewed our Mission and Vision which I am proud to share with our Unitholders here today. So, in line with our founding mandate in 1981, our Mission is “To create and enhance wealth for all by providing innovative investment solutions and world class customer service.” Our Vision through to the year 2020 states that we aspire to be “The leader in investment management and wealth creation in the region.”My address this afternoon is organized around four (4) main points, namely:

The 2015 financial and economic context;
The 2015 performance review; and
The 2016 – 2020 Strategic Plan
The 2016 Outlook.
Economic and Financial Market Condition 2015

The challenging macro-economic and financial market conditions that characterized 2014 persisted in 2015. The world economy experienced:

increased geo-political tensions;
divergent interest rate policies among the advanced economies;
sudden and dramatic changes in Chinese monetary and foreign exchange policies as China sought to refocus its economy toward export led growth; and
sharp declines in commodity prices.
GDP growth

The turbulence impacted each economy differently and prompted uneven rates of growth even among the Advanced Economies. While global GDP is estimated to have grown by approximately 3.1% in 2015:

China’s GDP grew by 6.9%;
GDP in the USA grew by 2.5%; and
GDP in the Euro area is estimated to have grown by just over 1%.
Interest rate divergence

With respect to interest rates, after holding its benchmark rate at near 0% for approximately nine (9) years, the Federal Reserve raised its benchmark rate by 0.25% to 0.50%. The European Central Bank, on the other hand, pursued aggressively accommodative policies in order to stimulate growth in the Euro Area resulting in some European Banks offering negative interest rates to their customers. The suppressed global interest rate conditions continued to negatively impact the rates of return on the Corporation’s income funds.

Domestically, the financial market was characterized by high levels of liquidity which averaged TT$3.5 billion during 2015. At its December Monetary Policy meeting, the Central Bank of Trinidad & Tobago raised its benchmark repo rate by 25 basis points to 4.75%. The decision marked the eighth consecutive increase as the Bank continued to address the differential between the US and TT interest rates as well as reining in resurgent inflationary pressures. At present, excess liquidity in Trinidad and Tobago approximates TT$5.5 billion.

This shift in monetary policy led to an increase in short term interest rates with the three (3) and six (6) months Treasury Bill rates increasing from 0.10% and 0.40% respectively at the end of 2014 to 0.52% and

2.55% in 2015.

Equities

The turbulent global macroeconomic environment had a generally adverse effect on equities worldwide during 2015. In the US, the S&P 500 and the Dow Jones Industrial Average contracted by 0.73% and 2.23% respectively. The UK based FTSE retreated by 4.93%. Regionally however, the Jamaican stock market’s capitalization grew by over 80% while the Barbadian and TT Composite indices grew more modestly by 6.52% and 0.99% respectively.

Ladies and Gentlemen, despite the increasingly challenging conditions in the local and international capital markets, the TTUTC produced positive returns for Unitholders in four out of the five funds under management.

Fund Performance

Funds under management increased marginally over the period 2014 to 2015 moving from TT$19.85 billion to TT$19.9 billion. Notably over the same period group impairments declined by 31.3% to TT$113.75 million from TT$165.59. In the midst of volatile conditions in equity markets, the TTUTC benefited from stability in the fixed income space which enabled the funds to produce favorable performances in 2015.

The Total Return Funds

The size of the Growth and Income Fund (GIF) was relatively unchanged from a year ago at TT$ 4.65 billion. The bid price recorded

an appreciation from TT$ 16.99 to TT$ 17.17 and cash distribution to Unitholders stood at TT$41.14 million for 2015.

The fund size of the Universal Retirement Fund (URF) increased by 6.22% from TT$271.39 million to TT$288.27 million year on year to 2015. The Fund’s unit price increased to TT$41.07 at the end of 2015 from TT$40.56 in 2014. The URF posted returns to the unitholders of 1.26%, despite a flat local stock market and a volatile international equity market in 2015.

The UTC North American Fund’s fund size decreased by 6.42% throughout 2015 from US$40.88 million (TT$262.48 million) to US$38.25 million (TT$245.62 million). The return for unitholders for 2015 was -3.71%, down from the 8.56% return in 2014. The North American Fund is made up primarily of international equities and its returns reflect the challenges in the international equities markets during 2015.

The Income Funds

The TT Dollar Income Fund enjoyed higher subscriptions in 2015 with overall fund size increasing 1.81% to TT$10. 66 billion. The Fund distributed TT$ 87.36 million to Unitholders and provided an overall return of 0.92% for the year.

Similarly, the US Dollar Income Fund’s fund size grew 0.47% to US$ 634.46 million and provided its Unitholders with a stable return of 0.81% for 2015.

In the environment of uncertainty that characterized 2015, the Corporation continued to take measures to preserve and enhance Unitholders’ value. Aggregate distributions to unitholders increased by percent to TT$218 million from TT$151 million.

STRATEGIC CORPORATE INITIATIVES
The year 2015 was the last year of the Corporation’s five (5) year Strategic Plan (2011-2015). It was gratifying to note our achievements over that planning horizon including improvements in: Governance & Risk Management – notably the improved capabilities with respect to Enterprise Risk Management, Anti-Money Laundering detection and reporting and Business Continuity Planning.
People & Talent Development – in particular the increased focus on engaging staff, the initiatives to improve our succession planning capabilities and the wellness programmes aimed at improving staff’s work/life balance
Productivity & Control – in particular the review and streamlining of our operational processes; and
Innovation – in particular the amendments to the legislation which gives the Corporation greater flexibility to innovate new products and services

The achievements over the preceding five (5) years provided a platform for the Corporation to develop its strategic plan for 2016 to 2020. I take this opportunity to thank the many members of staff who worked assiduously during that period. The culmination of their efforts is called “Strat 2020”. “Strat 2020” is supported by four (4) key pillars.

Focus on Customer and Brand
Product and Service Innovation
Cost Efficiency
Regulatory Management
Focus on Customer Brand

Our greatest interest is in you. Over the next five years we will focus on delivering world class customer service to our unit holders. As you visit any of our Investment centres, we encourage you to take the time to update your information as this will allow us to serve you better in the future.

Product and Service Innovation

We will deepen our customer knowledge and continue to introduce innovative investment solutions which will result in the enhancement of our existing product and service portfolio.

Cost Efficiency

To add more value to our unitholders, we will proactively drive the reduction of cost in our business via effective cost control and management.

Regulatory Management

The Corporation will seek to strengthen its ties with its regulatory stakeholders, fostering greater collaboration and ensuring that proper governance and transparency is observed.

I assure you today that at the heart of UTC’s “Strat 2020”, the Corporation remains devoted to the relentless pursuit of creating and enhancing wealth for all of you, our dearly valued Unitholders.

OUTLOOK FOR 2016

Stagnant global growth continues to pervade the international economy. One hypothesis suggests that the economic expansion experienced before the global financial crisis is unachievable in the near future.

In April of this year, the International Monetary Fund (IMF) lowered its baseline 2016 global output projection to 3.2%, 100 basis points away from the 1998 to 2007 average of 4.2%. Growth in developed economies such as the U.S. show signs of moderation, while the emerging market powerhouse, China, undergoes economic re-balancing as its policymakers attempt to shift output-drivers from exports to internally driven demand by local consumers. For 2016, we

expect to see structural adjustments from commodity driven sovereigns as they endeavor to wean themselves off the oil and gas revenues that have driven their economies for decades.

We in Trinidad & Tobago are also faced with this imperative of diversification as oil prices, particularly WTI crude oil and Henry Hub Natural Gas averaged US$ 44 per barrel and US$2.38 per mmbtu respectively over the past year. Our economy’s contraction will continue into 2016, with the IMF expecting a 1% fall in our gross domestic economic output. News of recessions, fiscal and structural adjustments, sovereign & state enterprise credit downgrades, inactive & under performing capital markets are expected to persist as energy prices as well as investor confidence remain low.

We believe that these factors ought not to cause alarm. Rather we suggest that, as we are in the trough of the business cycle, our prospects will improve as we enter the next phase and transition into expansion. It is in our view, a moment of optimal investment opportunity to garner value for our unitholders.

Accordingly, on January 11th 2016, with WTI crude oil approaching multi year lows at $30 a barrel, the Corporation promoted the Trinidad & Tobago Calypso Macro Index Fund, the first ever indigenous closed- end index fund. The Calypso Fund was listed on the Trinidad and Tobago Stock Exchange on January 11th 2016. At present, the Calypso

Fund gives unitholders an opportunity to attain precious local and

international assets at bargain prices. The value of the units is expected to increase over the next decade as we enter the next phase of the business cycle. On the Calypso’s Fund Performance to end April, 2016, I am pleased to report a return of 5.17% – this when compared to the All T&T Index return of -7.67%, a testimony of the Fund’s resilience. The main drivers of performance have been:

Positive returns in the international energy market (which accounts for 35% of the Fund)
Strength of the US Dollar (which account for 42% of the Fund)
Our Fixed Income and Balanced Funds are expected to benefit as the Trinidad and Tobago Dollar yields on short term fixed income instruments inch higher. Though the 1-year OMO (Central Bank Open Market Operation) is currently yielding just above 2%, it is anticipated that yields offered on OMO instruments will trend towards 3% by year end as liquidity falls below TT$5.5Bn.

As at April 2016, the annualized returns to unitholders of the TTD Income Fund and USD Income Fund continued to climb higher, with yields of 1.00% and 0.81% respectively.

On the other hand our Balanced Fund suite was subjected to the short term downside volatility of the local and international equity market. The flagship Growth & Income Fund as well as the Universal Retirement Fund posted net returns of -5.94% and -2.50% for the

period ending May 20th, 2016, while the North American Fund declined 6.40%, after the worst start to the year in the U.S. equity market since 1929.

Volatility expected to pervade the markets in 2016 is driven by:

uncertainties as to the direction of energy prices,
uncertainty with respect to the pace of the economic activity in China;
uncertainty with respect to such geopolitical issues as Britain’s membership in the European Common Market; and
uncertainty as to the direction of the Federal Reserve’s monetary policy.
The Corporation will spare no effort to ensure that it maximizes unitholders’ value in this sea of uncertainty.

Conclusion
In closing, I would like to thank publicly the Chairman and my fellow Directors for their ongoing trust, support and guidance.

I also wish to publicly thank my Executive Management Team, the Management and Staff of the Corporation for their steadfast support, loyalty and dedication.

Most of all, I thank you, our Unitholders, for maintaining the trust in the Corporation and spurring our institution to generate wealth through these challenging times.

I thank you.