Download US Fed finally raises rates and sends bond prices down

Pension
International Fixed Income Fund
Dec Net Asset Value:
Dec Net Asset Value:
Assets:
Assets:
$1.0629
$5.0396
$260K
$42M
Inception:
Inception:
Jan-15
Nov-12
Performance:
Fund
1 Month
0.19%
3 Months
-0.54%
12 Months
2.89%
YTD
2.89%
3-yr Ave Ann Ret
n/a
Allocation:
Portfolio Flat Yield:
The International Fixed Income Fund is a pension-only pool of assets that
invests in the USD Targeted Income Fund. Performance shown does not
include any fees associated with the administration of a pension plan and
may differ from other shares offered in the fund as a result of different fee
structures. The asset allocation shown is subject to change without notice
and at the discretion of the investment manager, subject to any restrictions
outlined in the fund’s offering documents. Past performance doesn’t guarantee future success.
Q4 2016
Issue 8
US Fed finally raises rates
and sends bond prices down
Frito Lay Potato Chips used to have a slogan: “Betcha Can’t Eat
Just One!”
Today, that catch phrase could
easily apply to the actions of the US
Federal Reserve. The Fed raised US
interest rates in December by
0.25%, for only the second time in
nearly a decade. However, it also
indicated that it cannot—as the
phrase goes— “Eat Just One” and
predicted at least three more hikes in 2017.
While the fixed income securities within the fund’s portfolio
are not linked directly to the USD rate, the effect of a rise in rates
still had a negative impact on security prices. Unlike the Bahamas,
variability among international fixed income issues involves both
coupon rate and bond price, which could be selling at par, a premium, or a discount, depending how attractive that bond is to the
market. When interest rates rise, prices of already issued fixed
income issues tend to fall,
because any new issue
would necessarily have to
feature a higher coupon
rate to be attractive to
investors.
The fund recently purchased several attractive Caribbean sovereign bonds, but the full
effect of those purchases have not yet been felt. We expect to see
greater traction in the upcoming year.
As well, we have identified several new securities we plan to
add to the portfolio shortly, which should diversify the relatively
concentrated mix, as well as boost overall returns.
The fund’s return of 2.89% for 2016 certainly won’t break any
records, but the goal of further developing a robust, higheryielding portfolio remains. We’re cautiously confident that 2017
will be the year take a large step toward that goal! 
Royal Fidelity Merchant Bank & Trust
51 Frederick Street
PO Box N 4853
www.royalfidelity.com
Nassau, Bahamas
[email protected]
(242) 356-9801