PORT OF SPAIN– The Trinidad and Tobago government says the total net asset value of the Heritage Stabilisation Fund (HSF) as at the end of September last year was US$6,087.9 million, compared to US$5,761.3 million as at June 30, 2024.
The HSF is a sovereign wealth fund established in March 2007 and was previously known as the Interim Revenue Stabilization Fund, which was set up in 2000.
The HSF is a long-term fund with two distinct elements: a stabilization component to insulate fiscal policy from fluctuations in energy sector revenues, and a savings component for future generations with more emphasis being placed on the savings component of this Fund.
According to the Quarterly Investment Report July 2024 to September 2024, released by the Ministry of Finance, the HSF total value was US$6,087.9 million, and of this total, the Investment Portfolio was valued at US$6,086.1 million, while the remaining portion was held in operating cash accounts to meet the day-to-day expenses that arise from the management of the Fund.
“For the quarter ended September 30, 2024, the HSF’s Investment Portfolio returned 5.74 per cent and outpaced its benchmark, which increased by 5.44 per cent. The declining interest rate environment provided a favourable backdrop for both bond and stock markets. Over the period, strong gains in the US fixed income and developed equity markets contributed to the Fund’s positive performance.”
The report said that the HSF outperformed by 30 basis points when compared with its Strategic Asset Allocation (SAA) benchmark.
It said excess returns were driven by relative asset allocation positioning. In aggregate, the HSF’s larger exposure to stocks – in particular the US Core Domestic Equity mandate – outweighed the negative effect of the Fund’s under allocation to fixed income.
“Collectively, external managers’ strategies were broadly neutral. While the US Short Duration and Non US Core International Equity mandates exceeded their respective market benchmarks, this was offset by the underperformance within the US Core Fixed Income and US Core Domestic Equity mandates.”
During the quarter, the relative deviations of the mandates’ weights from the approved SAA were maintained and reflected market value movements. As at September 30, 2024, all the mandates held weights above the allowable +/- 5 per cent deviation.
Following the rebalancing exercise in December 2023, the HSF Board determined that the Fund’s current asset allocation remained appropriate. The Central Bank will continue to monitor the Fund’s asset class exposures and provide regular updates to the Board.
The report noted that the main risks for the HSF portfolio are credit, concentration, interest rate, and currency risks.
Concentration or diversification risk is minimised by investing across various asset types and holding a large number of positions within an asset class. The aim is to minimise risk and/or maximise return by investing in a wide cross-section of asset classes and positions that would each react differently to the same market event.
Interest rate risk is managed using a weighted average effective duration limit on the respective portfolios. For the US Short Duration Fixed Income mandate, the allowable range is six months longer or shorter than the weighted average duration of its respective benchmark.
Currency risk is managed by containing and managing the exposure to non-US dollar instruments. For the fixed income mandates, no more than 10 per cent of the market value of the portfolio can be invested in securities denominated in currencies other than the US Dollar.
At the end of September 2024, the currency exposure for this portfolio was 97 per cent of its market value. During the quarter, all the portfolios were within their respective limits, the report noted. (CMC)
