18 - 24 November 1999

Global Funds SICAV plc: a case of 'Active Management'

Global Funds SICAV plc held its first annual general meeting on 9 November at the Westin Dragonara Resort in St Julian's. The agenda for the meeting consisted of three resolutions, the approval of the financial statements, the re-appointment of the auditors and the re-appointment of the directors, all of which were passed by the shareholders. Globe Financial Management Limited are the promoters and investment advisors of the Global Bond Fund Plus. NICHOLAS PORTELLI, a member of the investment committee of Globe Financial Management Limited, who is also responsible for all SICAV operations with the Company, gave an exclusive interview to Anthony Manduca

What is the role of an investment advisor?

The investment advisor provides investment advice to the Fund Manager. This agreement was reached between Global Funds SICAV plc, Globe Financial Management Limited as Investment Advisors and Valletta Fund Management Limited as Fund Managers in an investment advisory agreement drawn up before the launch of the Company.

How are investment decisions or recommendations taken?

This was Globe's first experience as advisors to a collective investment scheme.

The enterprise required the formalisation of an investment committee within the company. The investment Committee is made up of four people meeting on a regular basis. During these meetings the asset allocation is reviewed and revised as necessary.

On reviewing the asset allocation the committee analyses the performance of each and every security of the Fund including the geographical allocation and currency allocation. Naturally, this investment committee does not take investment decisions but forwards recommendations to the board of directors of the SICAV through Valletta Fund Management, the Fund Manger.

The investment philosophy of the investment committee of Globe is that of "active management". The success of the Global Bond Fund Plus is largely attributable to constant and consistent monitoring of each underlying investment leading to crystallisation of profits.

In view of the fact that the Fund invests primarily in overseas securities it is important to keep abreast with the foreign markets. This is done through live pricing systems available within the Globe organisation. We also have access to information that is sent to us on a daily basis from foreign stockbrokers and research analysts, and this information is extremely comprehensive and useful.

The report and accounts of the SICAV show a large number of investments within the Global Bond Fund Plus. Is that a healthy position for a fund and if so why?

The aim of any collective investment scheme is the diversification of assets and the consequent minimisation of investment risk. The Global Bond Fund Plus invests in both bonds and equities, either directly or indirectly, offering both capital growth and income. This mix between investment classes also offers a significant level of stability in that traditionally the bond and equity markets move in the opposite direction.

By investing in a wide range of investments, an average investor, apart from reducing investment risk, is also gaining access to a number of investments that alone in all probability he or she would not have been able to access.

Although the Global Bond Fund Plus is denominated in Maltese liri, many of the underlying investments are denominated in foreign currencies. Does this factor increase the volatility of the Fund?

The mixed investment portfolio of the Fund is another characteristic that distinguishes the Global Bond Fund Plus from other local collective investment schemes.

An investor can invest in local currency in the Fund and gain access to a truly international investment. Apart from Maltese lira, the Global Bond Fund Plus invests solely in hard currencies namely euro, sterling and US dollar. Traditionally these currencies tend to move against each other, therefore the losses made on the negative movements of one currency would normally be outweighed by the profits made on the positive movements of another currency.

These currency movements affect the performance of the Fund according to the proportion invested in that particular currency. This added diversification of the Fund through investment in different currencies adds an element of stability to the Fund and if managed well, can also prove to be a useful tool to increase the profitability of the Fund through gains made on exchange.

Looking at the figures on page 14, the Fund seems to have made substantial profits on the realisation of investments. How is that brought about, and is that the main driving force of the performance of the Fund?

Active management aims to provide a collective investment scheme with profits through the trading of the underlying investments of the scheme. A large proportion of the revenue of the Fund is derived from profitably buying and selling assets at the right time. This style of management is applied across the board, that is for bonds, shares and collective investment schemes.

This however is not the only element of revenue for the Fund. The Global Bond Fund Plus generates income from two other sources. As can be seen from the Report and Accounts, profits are made on exchange when assets are bought and sold or switched. Profits are also being made on foreign exchange movements. Referring again to the Report and Accounts one can see that some of the underlying investments of the Fund generate a substantial amount of income through the payment of interest. This income is ploughed back into the Fund and is used to purchase new assets thus increasing the net asset value of the Fund without increasing the number of share created.

In turn, everything else being equal, this will have a positive effect on the price of the Fund.

What are the prospects of the Global Bond Fund Plus for the coming year?

It is very difficult to anticipate the market movements and therefore the performance of the Global Bond Fund Plus. Having said this, the report and accounts of the Fund as at 31 July 1999 shows a bid price of Lm1.1285 and an offer price of Lm1.1825 reflecting a net return to investors of 12.85 per cent over the 10-month period. Today the bid and offer prices of the Fund are Lm1.1766 and Lm1.2345 respectively, reflecting a net return to investors over the 13-month period of nearly 18 per cent. Although one must be aware that the value of investments may go down as well as up and that past performance is not necessarily a guide to the future, I personally feel that the Fund is moving very much in the right direction.

I believe that the minimum entry level of the Global Bond Fund Plus is Lm2,500. Don't you think that this is too steep since the fund is targeted at the retail market?

For regulatory reasons the minimum entry level was set at Lm2,500, however the Fund has adopted a monthly savings plan. Through this facility any investor may invest a minimum of Lm1000 as an initial investment and pays a minimum of Lm25 a month until the minimum requirement is satisfied.

Are there any plans to launch other funds in the immediate future?

Similar to other investment companies, Global Funds SICAV plc will strive to increase the number of sub-funds in order to provide investors with a comprehensive range of funds.

There definitely are plans to launch new funds in the near future and probably by year end the second sub-fund of Global Funds SICAV plc should be up and running, with the aim of replicating the performance of its predecessor.