MFATT and the Mutual Fund Industry - Abbey Mohammed

What's the first step for someone starting to invest?

A1: Starting your investment journey begins with setting clear, tangible goals, such as saving for retirement or building wealth, and understanding your risk tolerance. Mutual funds emerge as a compelling option here, offering a way to diversify across various assets with a single investment, which can be tailored to match your risk appetite and investment horizon. Mutual funds simplify entering the investment world by pooling resources with other investors under professional management, aiming to strike a balance between risk and return which would be noted in a fund’s prospectus.

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What is the first step of someone starting to invest- Alesha Phelps

What is MFATT?

MFATT is the Mutual Fund Association of Trinidad and Tobago. It is the representative body of mutual fund practitioners.

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How inflation impacts your savings and investments- Keshala Mahabir

Q & A with the Mutual Fund Association of Trinidad and Tobago (MFATT)

Keshala Mahabir-Gosine
Portfolio Manager- Maritime Capital Limited

MFATT: Designated Representative of Director

How Inflation Impacts Your Savings and Investments

What is inflation? 

We hear this term often, whether through Central Bank Reports, Government Bureaus or Annual Budget Presentations. Today we will delve a little deeper into what inflation really is and how it impacts our savings and investments.

Inflation is the rate at which the overall level of prices for various goods and services in an economy rises over a period of time. We experience this in our everyday lives when we observe the prices of basic staple items go up as time goes by. For example, a doubles which costed $3 in 2003, costs $6 now, 100% more than it did back then. Effectively, the purchasing power of our money is decreasing over time; this is inflation.

What causes inflation?

Inflation is caused by many factors, one of them being rising demand for a good or service where there is limited supply. Consumers are therefore willing to pay more for the same product, in turn pushing prices higher. If we look at the ongoing war between Russia and Ukraine, with Russia being one of the world’s largest suppliers of oil, the production output of oil was cut resulting in its lowering supply. Since then we have seen the price of oil rising to highs of over US$100/bbl and levelling off at US$ 79bbl as of 13th June 2024 date. In addition to energy production being lower than the world’s demand, we cannot forget the implication of the reopening of economies post Covid -19 and its impact on supply chains globally. These issues caused systemic rises in transportation and freight costs as there were massive bottlenecks in production and supply of metals and other commodities.

Rising production costs resulting from these factors cause inflation as these are passed on to consumers in the form of higher prices. In our economy, inflation had averaged approximately 1.68% per annum for the 7 years prior to and including 2021. During 2022, (year of Russia Ukraine war) we saw inflation climbing to 8.70%, effectively lifting our inflation average to 2.55%.

How does inflation impact us?

As we have realised by now, if our money sits in a bank account, its purchasing power will fall as prices continue to rise every day. In Trinidad and Tobago for example, for the 9.3 years covering December 2015 to April 2024, inflation has risen by 21.23% or at an average rate of 2.28% per annum, tracked by the CPI Index developed by the Central Statistical Office. If your wages did not increase by at least 20% over this period, you would not have been able to enjoy life in 2024 as you did in 2015.

What can we do to combat the effect of inflation?

Suppose through your savings you accumulated say $50,000 and banked it in December 2014. This same $50,000 in April 2024 will be worth approximately $39,385 all else being equal. If you had invested in a 10 year Government bond with a yield of 2.7% at that time (Central Bank Yield Curve December 2014 at the 10 year tenor), you would have been able to maintain the value of the savings and have a little extra to spend. Of course this is all in hindsight; we cannot predict what the future holds. Nobody holds a crystal ball therefore nobody could have anticipated the impacts of Covid 19, the Russia Ukraine war and the ripple effects of these on us and the economy has a whole.

While we cannot change the past, we can prepare for the future by putting our money to work smartly so it provides returns which are greater than the rate of inflation.

Can investing add value?

When we buy stocks of a company, we own a piece of that company. The company’s performance in terms of earnings generation in theory drives the share price of the stock. When companies are able to successfully pass on rising costs onto consumers, this is filtered into share price increases which adds to our investment value. In this way equities can act as an inflation hedge. Our Composite Index (which tracks the performance of the local and regional stocks) has returned 8.18% for the period December 31st 2014 to May 31st 2024. Appropriate sector allocation and stock picking can assist with achieving above average returns when done right.

Investors seeking less volatile options can take advantage of the Government Bonds with benchmark yields of 5.32% for a 10 year period.

In Trinidad and Tobago investors have subscriptions in excess of 60Bn in Mutual Funds. These mutual funds are invested in diversified buckets of stocks and bonds and seek to provide stable and /or superior returns to investors. There are currently 16 issuers of Mutual Funds in Trinidad and Tobago and many options to choose from; 12 of these form part of the Mutual Fund Association of Trinidad and Tobago (MFATT). Investors should seek out a trusted investment partner that has a track record of outperforming the financial markets. For more information on Mutual Fund providers in Trinidad and Tobago, investors can visit the MFATT’s website at https://mfatt.org/.