market has provided the second highest return out of the largest equity markets. David Fox reports Investors in the Butterfield Bermuda Fund have enjoyed a stunning 71.1 percent total return over the year to March 31.

And portfolio manager Barry Kaiser noted that the mutual fund has attracted a lot of interest as a result.

Mr. Kaiser also touched on the 60/40 rule, saying companies could follow the Bank of Bermuda in trying to skirt round the restriction.

"It would be a natural progression,'' he said.

The extraordinary appreciation of the Butterfield Bermuda Fund has driven a substantial rise in its net asset value, which is steadily approaching $20 million.

The mutual fund's total net asset value at the end of the quarter was listed at $18.2 million, largely attributable to the rise in the per share net asset value. It has since grown to $19.5 million.

The fund's investment adviser, Butterfield Asset Management Ltd., has been mindful of the frustration of small would-be investors who have difficulty being properly positioned to pick up stock.

Mr. Kaiser said, "The mutual fund offers the liquidity to be able to go into the market on a weekly basis and buy and sell stock and not be worried about how soon it would take to execute the order.'' And he said, "That 71.1 percent annualised return for the fund represents the capital gains and the dividends over the past year. A lot of the run-up came in the early part of the last 12 months, when bank stocks (Bank of Butterfield and Bank of Bermuda) started to take off.'' A quarterly report to shareholders indicates that the net asset value per share, excluding dividends, increased from $13.74 to $15.15 over the three months to the end of March. The fund also paid 12 cents per share for the quarter.

Total return for the quarter was 11.14 percent, in comparison to the Bermuda Stock Exchange (BSX) index's 13.27 percent over the same period, as quoted by Bloomberg. The return of the BSX index for the period, excluding the effect of dividends, was 12.66 percent.

The mutual fund's quarterly report noted the rise in the Bermuda market in recent months, after the BSX index surged during late January and early February, fuelled by appreciation in the Bank of Bermuda's share price. The index slowed later in February and remained flat during March. The quarterly report speculated that investors attention was drawn during the quarter to the Bank of Bermuda's high profile effort to seek exemption from the 60/40 rule.

The report noted: "The bank's share price rose in late January and early February in anticipation of the tabling of a private bill to Parliament in early March, and news that the bill would be held over until May prompted March's lull in activity.

"The Bank of Butterfield's share price moved in a reactionary fashion to that of the Bank of Bermuda's, following suit in late January and remaining flat during February and March.

"BELCO Holdings' share price was relatively stable during the quarter ending down marginally, and Argus Insurance traded up for the quarter.

"With discussions of 60/40 relaxation in the air, investors are focusing on future return potential for the market. Whilst the argument may hold that foreign investment flow and added liquidity will provide for a positive future environment for Bermuda investors, we should pause for a moment to have a look at the past.

"On an annualised basis, over the last 26 years, the Bermuda market has provided the second highest return when compared to the ten largest international equity markets. Realisation of statistics like these, together with expected future performance given potential deregulation, makes Bermuda very attractive for foreign investors looking for value on a global basis.

"The Butterfield Bermuda Fund continues to be one of the few investment vehicles available to the investor that offers diversification and liquidity to the Bermuda market.'' Meanwhile, Mr. Kaiser noted that the result this spring or summer of the Parliamentary consideration of the bank's legislative petition could determine the extent of activity in the market.

He said, "The whole issue has been driving the market, or certainly the two bank stocks, for the last year. And where that goes, to some degree, will determine what happens to the bank stocks. It's really a bet right now, on where 60/40 is going, rather than anything else.

"The Bank of Bermuda is not the only company interested in getting around the 60/40 restriction and I can see how it could be the wave of the future for some companies which would seek to get secondary listings on other stock exchanges. It would be a natural progression, and I can see how the economic forces will blow and drive that for a long time.''