Nunavut Trust not worried by possible Y2K market declines

MICHAELA RODRIGUE

IQALUIT — The Nunavut Trust won’t change it’s long-term strategy to guard against a Y2K-induced stock market decline, the trust’s chief executive officer says.

“Nobody has been successful at timing the markets,” Nunavut Trust CEO Andy Campbell said when asked if trust fund managers are moving money out of stocks and into safer bonds to prepare for a stock market down-turn in the new millenium.

The Nunavut Trust invests Inuit land claims compensation money given to Inuit by the federal government.

Revenues earned by the Nunavut Trust’s investments are then used to fund NTI, the regional Inuit associations, the Elders’ Pension Trust and the Hunter Support Program.

During 1998, the Nunavut Trust achieved a 17.2-per-cent rate of return on investments. That puts its performance in the top one per cent of investment funds with assets of more than $100 million rated by the Canadian Trust Universe Comparison Service. The trust’s five-year average return sits at 12.8 per cent.

But the upcoming new millennium, and the computer problems that some observers expect to see associated with it, has some investors wondering if the stock market is headed for a dive.

Campbell said, however, that he expects the new millennium will create some “short-term volatility” until investors realize that the disaster isn’t going to happen.

Once that happens, Nunavut Trust’s managers will have some good buying opportunities, Campbell said. Even if the current bull market turns bearish, Nunavut Trust will stay the course with its ratio of stocks to bonds and cash.

Right now, the Nunavut Trust manages $575 million in its trust fund. About 32 per cent is invested in Canadian stocks, another 40 per cent is invested in Canadian bonds, and the remaining 28 per cent is invested in foreign stocks.

In 1994, the asset mix was tested against hundreds of possible market scenarios over a 15-year period. In almost all cases, the asset mix was able to withstand market conditions and generate enough funds to meet NTI’s needs in the long-term, Campbell said

In fact, the trust only has to make an average annual return of 4 per cent above inflation create $1.1 billion worth of assets by 2008, Campbell says.

To date, the Nunavut Trust has done better than that, but Campbell said future downturns in the market and consequent downturns in the trust’s returns are inevitable.

“The day will come when we see market declines,” Campbell said. “You are going to have setbacks. Bear markets tend to last 18 to 24 months.”

Campbell said investor concerns about the Year 2000 computer problem could be the final straw for a protracted stock market decline, but the trust isn’t going to start quickly shifting money out of stocks and into bonds as a result, Campbell said.

“Asset mixes don’t change quickly. If economic conditions change, or relative returns of assets classes change, then of course asset mix would change — but over many, many years,” he said.

In fact a bear market “wouldn’t be such a bad thing,” and would give fund managers some cheaper stock to buy.

But to protect against the coming of the bear, Nunavut Trust recently advised NTI to put this year’s $11 million in extra reserves down on its debt and in effect, create a reserve for future downturns. To date, NTI has borrowed about $92 million from Nunavut Trust.

“Because we’ve been going through a profitable period, it would be wise to pay down some of the debt,” he said.

NTI decided to use the $11-million surplus to pay down the debt at its recent AGM.