The Heritage and Stabilisation Fund 101 – Part Two

6 June 2016


In the second of a three-part series we take a further look at the Heritage and Stabilisation Fund of the Republic of Trinidad and Tobago. We look at the performance of the fund, the type of investments that the fund has made, and how it ranks internationally against other sovereign funds of a similar type.


The Heritage and Stabilisation Fund (HSF) was created by Act number 6 of 2007 and received Presidential Assent on the 15th March 2007. The HSF is a successor fund to the Interim Revenue Stabilisation Fund (IRSF), with the balance on the IRSF being transferred to the HSF by provision of section 12 of the Act.

The first part in this series of blog entries discussed the purpose of the HSF, what the fund comprises of, when the government is obliged to add to the fund, when the government is allowed by law to utilise the fund, whether a minimum balance must be retained on the fund, and who manages the fund on behalf of the citizens of Trinidad and Tobago. The first blog entry in this series may be found at the following link:

The Strategic Asset Allocation of the Fund

In 2008 the Board of Governors of the HSF approved the Strategic Asset Allocation (SAA) for the fund. The SAA is considered to be the optimal mix of assets that is expected to meet the long term investment objectives of the HSF in terms of risk suffered from the investments made and the returns derived from those investments.

The limits set by the SAA are as follows:

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In theory the actual balances contained under each of the categories are allowed to deviate from the SAA by a factor of +/- 5%, but beyond this a rebalancing of the overall portfolio is required.
In August 2014 the portfolio was rebalanced with US$202.6m being sold from the two equity components of the fund with the proceeds being reinvested into the two fixed income components.
As at 30th September 2014 (and for the quarters within that year) the actual portfolio composition relative to the approved SAA was as follows:

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The Funds Value for the Year Ended 30th September 2014

As at 30th September 2014, the fund’s Net Asset Value (NAV) stood at US$5,533.4m, compared to US$5,154.0m at the end of September 2013. The increase in value of the fund reflected positive investment returns as no additional sums were invested into the fund by the Government in the year ended 30th September 2014.

Since inception of the HSF the net asset value, income from the year, accumulated gains and losses, and contributions by the Government have been as follows:

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The Portfolios Performance for the Year Ended 30th September 2014

Over the financial year ended 30th September 2014 the fund’s investment portfolio gained 7.65% compared with expected returns of 5.6% for the SAA (based on the weighted average return).

The Weighted Average Return by components of the HSF for the year ended 30th September 2014 was as follows:

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The US Short Duration Fixed Income element of the fund returned a weighted average return of 0.21% against a return of 0.16% for its benchmark the Bank of America Merrill Lynch 1-5 year US Treasury Index. The outperformance of the portfolio relative to the benchmark was attributable to the portfolios exposure to German Bunds as yields fell in Germany, and exposure to spread products (mortgage backed securities) as spreads in general tightened during the financial year ended 30th September 2014.

The US Core Fixed Income element of the fund returned a weighted average return of 1.59% over the financial year ended 30th September 2014. This compares favourably to a weighted average return of 1.57% on its Benchmark the Barclays Capital US Aggregate Bond Index. The portfolio’s exposure to commercial backed securities and corporate bonds were the primary contributors to excess returns, as sector allocation was integral to excess returns over the financial year. In addition, security selection in the securitised sector (mortgage backed securities, and mortgage pass-through) was also positive

The US Core Domestic Equity element of the portfolio returned a weighted average return of 3.83% compared to a return of 3.06% for its Benchmark the Russell 3000 ex Energy Index. The outperformance of this part of the portfolio was as a result of sector allocations taken by the fund’s managers. Allocations to the technology, consumer discretionary, and materials and processing sectors, proved beneficial to the overall portfolio returns.

The final equity element of the HSF, the Non US Core International Equity portfolio returned 1.90% to outperform the MCSI EAFF ex Energy Index return of 0.76%. The excess returns were attributable to favourable security section by the managers and to currency hedged allocations over the financial year. Allocations to investments located in Norway and Finland proved to be especially beneficial to the portfolio.

The overall performance of the fund since inception

The overall performance of the HSF since its inception can be summarised by the following table:

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Cash Contributions from the Government

The fund received no cash contributions from the Government during the year ended 30th September 2014 as a result of lower than expected gas and oil prices on international markets.

The Cash Balances Held by the Fund

As at the 30th September 2014 the fund held cash balances of approximately US$1.5 million. Cash balances are used to meet the day to day expenses arising from the management of the fund.

Where the Fund Ranks Internationally

Click here to see a list of International Funds ranked according to size for the last comparable date that data was available for all of the funds (2014 data). For 2014 the HSF was 48 places below the largest fund (Norway’s Government Pension Fund) with the HSF total value representing less than 1% of the total value of Norway’s fund.

Future Blog Entries on the HSF

In the third blog entry in this series we look at the future of the fund and discuss the desirability of splitting the fund into two distinct parts that reflect the funds dual purpose. We also take the opportunity to assess other reforms that may improve the returns of the HSF and the transparency and accountability of its operations.

Definitions used in this series of blog entries

In accordance with the terms of the Heritage and Stabilisation Fund Act, Petroleum Revenues means the aggregate of the supplemental petroleum tax, petroleum profits tax and royalties but does not include unemployment levy, the oil impost and signature bonuses. The term Consolidated Fund is not defined in the Heritage and Stabilisation Fund Act but is assumed to mean the general revenue and expense account of the Government of the Republic of Trinidad and Tobago as defined in section 13 of the Exchequer and Audit Act of 1959.

Closing thoughts – time to consider your investing strategies

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