Bermuda Fund reports volatile performance
A Bermuda mutual fund has had to consider, among other things, the unusual battle for domestic insurance dominance, strategic moves by a commercial real estate owner and the substantial market volatility in its quest to deliver investor returns.
The president of the Butterfield Bermuda Fund has explained the fund’s volatile performance by highlighting a weakness in regional banks and a difficult period for global equity markets.
In a filing with the Bermuda Stock Exchange, Jeffrey Abbott, the head of asset management, Bermuda, at Butterfield Group, reported that the fund’s total return for the year ended June 30 was 5.51 per cent.
The fund paid out 60 cents in dividends throughout the year giving a dividend yield of 1.49 per cent, based on June 30, 2023 net asset value.
As part of the end of year financial statement, Mr Abbott said the fund continued to maintain a dividend policy whereby the dividend yield of the fund was representative of the dividend yield for the fund’s constituent companies.
In his market review, he said domestic market constituents had struggled to find their footing in a year of significant disruption and change.
He wrote: “BF&M Group publicly declared they were exploring a sale of the company as the year turned into a proxy battle with their largest competitor.
“Argus through their subsidiary entered a deal to acquire a controlling stake of the insurer in a shock move that would change the local landscape significantly.
“BF&M responded with a shareholder rights plan, or ‘poison pill’ that could put the deal out of reach for Argus.
“Butterfield Group came under pressure as the collapse of US regional and a European bank hurt the share price.
“West Hamilton Holdings made a strategic move in selling a stake of their sprawling real estate company in a move that shows how valuable investors view the upper and commercial real estate section on Pitts Bay Road.
“The Bermuda Government released its economic development strategy that included a five-point plan to grow the economy. This is welcome news that included local and international business retention and expansion as key drivers.
“Additionally, there has been movement on the implementation of a mortgage guarantee programme that included payroll tax rebates and duty relief.
“GDP figures and retail sales numbers were mixed but the trend is moving in the right direction.”
Mr Abbott reviewed Bermuda’s future implementation of a global minimum tax as recommended by the Organisation for Economic Co-operation and Development.
He wrote: “Initial estimates show that these taxes could bring in $150 billion in global tax revenue, with the domestic numbers still yet to be determined.
“With Bermuda’s compliant reputation and the upstanding companies that are domiciled, the implementation of this programme will be a top priority, with the potential tax revenues to help the Government debt numbers move in the positive direction.”
Mr Abbott added: “The foreign reinsurance sector performance for the fiscal year was also mixed as global equity markets struggled in the face of rising inflation.
“The US Fed continued on its aggressive tightening path as the terminal interest rate increased 300 basis points in the last fiscal year.
“The industry’s competitive pricing landscape for US property and catastrophe markets grew to higher levels and investor sentiment is improving after a period of caution and market contraction.
“Global loss events were again above average this year after the disasters in the Middle East. However, the number of insured losses were much less, again proving that the protection gap remains a significant market opportunity for industry players.
“The creating of new and diverse companies in the life and annuity space continue to dominate the calls for capital.
“Company formations in the reinsurance space continue to grow, with Bermuda marketplace at the forefront.
“The opportunity to diversify into further coverage areas is a key component of growth as firms look for scale.”
Mr Abbott said the fund continued to be positioned with reinsurance as bit overweight and underweight in income bearing securities given the interest rate landscape.
He added: “The fund continues to find a measured approach to managing growth in the midst of market challenges in the search for outsized returns.
“There is still much room for well-managed companies to take intelligent risks, which is crucial to creating long-term shareholder value.”
Of the outlook, Mr Abbott wrote: “We remain steadfast in our approach to invest in companies that show long-term value creation as a core principle of doing business.
“As the protection gap in global insurance demand continues to remain wide, we see the opportunity for risk managers to grow portfolios with well-managed underwriting returns.
“As the Bermuda Government continues to direct efforts into making it easier to do business coupled with the potential onset of regulated tax revenues, we see fund constituents being able to grow further with opportunities in the marketplace.
“The fund remains steadfast with our disciplined approach to earning positive shareholder value.”
The fund portfolio consists of the common stock of 24 companies, preferred stock in five more and corporate and government bonds.
Shares in Argus Group Holdings Ltd make up 10.8 per cent of the portfolio, followed by Bank of NT Butterfield & Son Ltd (10.25 per cent), BF&M Ltd (9.29 per cent), Arch Capital Group Ltd (7.10 per cent) and Chubb Ltd (6.62 per cent).
The Butterfield Bermuda Fund Ltd is to hold its 2023 annual meeting on December 12.