Sabrina Gordon, Business Reporter

Mutual funds invested in the equities market have taken a beating with the downturn in stock markets around the world, say experts in the market.

"Equity funds would have seen a decline of 15 per cent to as high as 53 per cent year over year," said Christopher Chin-Loy, head of Scotia DBG Investment stock-brokerage division.

"The bond and money market fund have maintained value for clients. However the equity fund mirrors what is happening on the stock markets," he added.

Chin-Loy's argument was collaborated by Charles Ross, managing director of Sterling Asset Management who said that the decline in equity-backed mutual funds would have seen an average fall of anywhere between 10 and 20 per cent depending on the portfolio mix.

"But given a well-diversified and managed portfolio they should fare well," Chin-Loy remarked.

Mutual fund is a pool of savings contributed by many investors and invested and managed by a professional portfolio manager.

The funds are usually invested in stocks, bonds, and the real estate market.

When the fund makes money, unit holders share the benefits, and if the value of the fund falls, everyone shares in the loss.

Financial Services Commission data place a value of US$7.1 million on mutual funds sold in the Jamaican market at the end of September, a fragment of the US$26 trillion of funds traded worldwide.

Generally more of the weighting in a mutual fund portfolio is towards equity because of the higher rate of return.

According to one analyst, portfolios could now be seeing rates of return of six per cent per annum, and even as low as two per cent.

"In the old days, younger persons would invest up to 60 or 70 per cent in equity, 20 per cent in real estate and 10 per cent in bonds and as one gets older you would reduce equity, increase bond and maintain or reduce real estate," said Ross.

Growth

"But for a long period we have seen growth in equity so people felt that they needed to keep a significant portion of the fund in equities and with people living longer they needed to get a higher rate of return and value on the fund. So we have seen up to 50 per cent being retained in equity up to the point of retirement," he said

Portfolios now, he adds, tend to be 50 per cent invest in equity, and about 20 to 30 per cent in bonds.

In the United States, the stock market lost US$2.2 trillion in Octo-ber alone.

"Equity fund investment will be down sig-nificantly depending on whether you invested in US dollar, euro or other currency, as equity markets are battered and with the contraction of economies around the world," said Ross.

"Over the last year equity funds have done very badly around the world," he said.

Bond funds, on the other hand, have done fairly well

"Although the coupon payment/ interest rates on them are small," Ross said, "as the interest rate decline bond price will increase and results in significant capital gain and big returns thus will see them doing very well."

Recently, there have been signs of a rally in US government bond prices with returns of up to 20 per cent over the last year, Ross said.

Notwithstanding the decline in equities, mutual fund portfolios were said to be holding their own compared to stock indices.

"... For example, we have seen S&P down 65 per cent year to date," said Chin-Loy.

The FSC had no data on how the changing economic landscape has affected the totality of the mutual fund market in Jamaica, but said the value of funds under management globally has declined by approximately 23 per cent between September 2007 and September 2008.

sabrina.gordon@gleanerjm.com