GAAM launches third unit trust for Govt. securities

Wednesday, 4 March 2015 00:00 - - {{hitsCtrl.values.hits}}

Acuity Partners Managing Director Group CEO Ray Abeywardena (second from right) addresses the media yesterday. Others from left are Guardian Acuity Asset Management General Manager Mohandas Thangarajah, Guardian Fund Management Fund Manager Sumith Perera, Director and CEO Ruvini Fernando and Director and Head of Portfolio Management Niloo Jayatilake - Pic by Upul Abayasekara By Channa Fernandopulle Guardian Acuity Asset Management (GAAM) yesterday announced the launch of the its third fund offering to the public, the Guardian Acuity Money Market Gilt Fund. The third in a series of unit trust funds from GAAM, the new open-ended gilt fund will target short term Government securities with a one-year maturity period and feature a low minimum subscription of Rs. 1,000 in order to appeal to a wider base of investors. Preliminary investments into the gilt fund will take the initial fund size to Rs. 500 million while GAAM will be adopting a daily valuation approach to the fund, allowing investors the option of entering or exiting the fund without being levied any additional fees. Assets are expected to be allocated among Treasury Bills, Treasury Bonds and Repos in the proportions of 50%, 10% and 40% respectively while GAAM Unit Trust Fund Manager Sumith Perera projected an expected yield of approximately 5.75% based on prevailing market conditions but noted that the yield may be subject to change relative to anticipated movements in interest rates over the coming months. The core concept driving the formation of the gilt fund was based on three key domestic trends according to Guardian Fund Management Ltd CEO, Ruvini Fernando, namely: increased levels of savings, an aging population and a structural shift towards lower interest rates. “As people become more affluent with rising per capita income rates, naturally they would save more and they will require new avenues to invest those savings to earn a good rate of return. Another key factor is that we have an aging population so there is a great demand for better rates of return as more of the country’s working population goes into retirement in addition to their pension, gratuity or provident fund returns. “Additionally when you look at Sri Lanka’s macro-economy, there has been a structural adjustment downwards. We are quickly approaching a single digit interest rate environment and simply depositing savings in banks will no longer be enough for retirees or even for young people looking to build a house or send their children for higher education. So it is clear that over time people are going to start looking for more sophisticated investment options,” Fernando explained. Elaborating on the performance of GAAM’s other unit trust funds - focused on fixed income and equity – Sumith Perera noted that the GAAM Fixed Income Fund, which started with an initial Rs. 100 million three years ago, had since grown to Rs. 1.95 billion while its Equity Fund had consistently outperformed the All Share Price Index (ASPI) from 2012-2014 and even into the early months of 2015. “By investing in several different unit trust funds investing in different areas of the capital market, each fund will carry a different level of risk allowing investors to spread their investments across equity, fixed income and government securities depending on their risk appetite. “While a younger investor with a higher risk appetite may wish to increase their exposure to equity, older investors are more likely to favour more stable investments at lower returns like the fixed income and gilt funds.” Perera observed. When questioned about the impact of new Government policies which provide for a 15% interest rate for deposits of senior citizens, Fernando maintained that given the caps placed deposit sizes and the fact that the gilt edge fund would be open to all classes of investors, the unit trust mechanism still provided a viable alternative. Operating instructions issued by the Central Bank of Sri Lanka (CBSL) on the matter specify that senior citizens above 60 years of age who held fixed deposits of Rs. 1 million or less by 31st January and senior citizens who reach 60 years of age after 31st January and hold rupee fixed deposits of Rs. 1 million or less will receive 15% interest on their savings while senior citizens who opened fixed deposits prior to 16th January of up to Rs. 2.5 million under the previous scheme will receive an interest rate of 12%. GAAM is a joint venture between Acuity Partners Ltd. – itself a joint venture by Hatton National Bank and DFCC Bank - and Ceylon Guardian Investment Trust Plc which Carson Cumberbatch Plc which holds a 67% stake in the company.