By VERNON CLEMENT JONES, Guardian Business Editor, vernon@nasguard.com

Year-to-date numbers suggest Royal Fidelity's choice of indices for its first plunge into international markets is hampering the fund's performance, with specific concerns arising about the inclusion of the troubled Nikkei 225 and an even more beleaguered composite of "emerging markets".

All four of the mutual fund's selected indices, in fact, continue to hemorrhage. Still, it's the iShares MSCI Emerging Markets Index and its Japanese counterpart, the Nikkei 225, that have led the downward movement for the mutual fund — and the Bahamians investors who put money down on a bet that doesn't yet, at least, appear to be paying off.

Yesterday, the Nikkei 225, a price-weighted average of 225 top-rated Japanese companies, closed down for a YTD loss of 8.91 percent. The Emerging Markets index, an exchange traded fund managed by Barclays Global Investors, went one better piling up a loss of 10.59 percent from its January 1, 2008, value.

Those troubles were somewhat mitigated by a 6.68 percent drop for the Bahamian fund's Dow Jones Eurostoxx 50 Index and the 4.81 percent lost sustained by the star of the group, the S& P 500. Still, overall the indices produced a 7.74 percent loss — at least as far as the fund's international investments go. It was last November Fidelity launched the investment vehicle, billing it as a way of ensuring diversity by spreading investment eggs across four different baskets. While the company collected subscription of $10 million, only 20 percent of that left the country.

That $2m was divvied up four-equal ways to be invested in those international indices.

The $8 million remaining in this country has been squirrelled away in fixed-income vehicles at clearing banks, said Fidelity's Jim Graham, last November. Make no mistake that's a good thing, considering the performance of the four indices the company settled on for the fund and its pledge to "protect" the principal investment of investors.

Those Bahamians were counting on the performance of the international indices to grow that money over the course of its 3 -1/2 year-termed. That hasn't yet happened.

The company seems acutely aware of any anxiety stemming from the lackluster performance — what RF pegs at -5.87 percent YTD at the close of last month.

"Royal Fidelity urges investors to take a long-term view of their investments in the international funds," reads an analysis of that performance produced by the company. "Their main benefit was to provide portfolio diversification, access to foreign currencies with great upside against the U.S. dollar, and access to potential returns that could be greater than those available in the Bahamian capital markets."

That potential will likely continue to be frustrated by the Nikkei and the Emerging Markets declines, with analysts suggesting both will see further slides before the year's end.

Those experts are blaming the decline in the greenback against world currencies and so the reduced spending power of Americans — the most important customers for Japanese and developing world goods.

Ironically, say analysts, investment in U.S. companies may be a better bet over the next five years as they see a mild increase in demand for their products given that same value drop in the U.S. dollar.

For some local financial services players, that phenomenon suggests that time may ultimately throw into doubt Royal Fidelity's choice of baskets in which to put the eggs of its customers.

"When you invest," Ken Kerr of Providence Advisor told Guardian Business, "you invest in the long-term — you can't measure the return in the period so short as four or five months.

"But that doesn't absolve Royal Fidelity from taking responsibility for the choices they've made."

The industry veteran also has questions about the fees RF has attached to the fund investment, which may, he argues, be on the high side given the historical nature of indexed funds and the relative ease of administration.

"The costs associated with giving people access to an index fund may be out of step with other markets, and to me it is prohibitive," he said.

Still, investors will ultimately decide if the cost was in fact worth the returns — either when they cash out in another three years or when they try to shift their investments onto other Bahamians.