2011 Report - Fortress Mutual Fund Ltd

the worst days of the 2008/2009 crisis, but is still generally lacklustre and there has been upward pressure onunemployment. Regional governments’ fiscal situations have not improved. They continue to see debts grow as taxrevenues struggle to keep pace with expenditures. Inflation in Barbados is currently running over 6%, a level thatwe would argue is unsustainable in a competitive global tourism market, and one which every day is eroding thepurchasing power of each Barbados dollar earned or saved for the future.This time last year we wrote that we were “hopeful that government and business leaders will find the support theyneed to make critical improvements to our fiscal situation, capital markets and financial institutions. The growthand prosperity of all of us in the region depends on it”. Unfortunately, we are unable to report that there have beensignificant improvements in this area over the past 12 months.Fiscal situation:As noted above, the government fiscal situation in the region remains poor and has worsened. In June, the bondrating agency Moody’s downgraded Government of Barbados domestic debt to one notch above “junk” status. Italso changed its forward looking outlook to negative, suggesting that on the current trajectory the Government ofBarbados is unlikely to maintain an investment grade bond rating for much longer.Capital markets:Barbados stock markets continue to provide only limited choice and liquidity for equity investors. We wereencouraged by some measures taken in Jamaica to encourage companies to list their shares by providing taxincentives to do so. Unfortunately, this has not yet occurred in Barbados and investors of all kinds – mutual funds,insurance companies, pension funds and individuals – are still left with a very limited capital market.Financial institutions:The CLICO situation remains largely unresolved, leaving policyholders unsure of their position as the weeks andmonths tick by. Investors and savers of all kinds also wonder what would stop another CLICO-like debacle fromoccurring. The new Financial Services Commission in Barbados could potentially be a helpful step towards betterregulation of all kinds of financial institutions. Time will tell.We remain hopeful that further steps will be taken to address the economic challenges in Barbados and the Caribbeangenerally. But some of the fiscal pressures have become more difficult over the past 12 months, not easier. Recentevents in Greece highlight how quickly a weak underlying fiscal situation can move from being perceived as “absolutelyfine” to “disastrous”, with Greek government bonds falling in value to less than 30 cents on the dollar as protestorsdemonstrate in the streets against cuts to wages and to government services.FUND PERFORMANCE AND POSITIONINGThe Fund’s return for the year ended September 30, 2011 was 0.3%, well below its historical average annual compoundrate since inception of 10.7% per year. This year, gains in some Caribbean holdings were largely offset by declines ininternational investments. The Barbados, Jamaica and Trinidad markets returned 8.6%, 8.9% and 18.9% respectivelyduring the year, while the MSCI World index, a proxy for global stocks, fell 3.8% over the same period.9