The fund aims to enhance yield by investing in a blend of floating rate note and credit instruments in a range of maturities. The fund is mandated to invest in unlisted financial instruments (derivatives) for efficient portfolio management. This portfolio may also invest in participatory interests of underlying unit trust portfolios.
Illustrative Annualised Investment Performance
Minimum Disclosure Document (Fund Fact Sheet)
Source of graph : Morningstar
This graph illustrates how an investment of R100 would have grown had you invested in 2010 until 2016. Like everything in life, all investments can change and come with some degree of risk. That’s why we need this disclaimer, to tell you that past performances are not necessarily a guide to future performances, and that the value of investments/units/unit trusts may go down as well as up. The performance shown in the table above is a graphical representation of your selection (of the benchmark’s past performance of the fund you selected) – including your investment objective, risk profile and fund choice – and is based on the past performance of the fund in relation to your investment. This performance is indicative and not guaranteed. The graph is for illustrative purposes only and investment performance is calculated by taking into account initial fees and all ongoing fees that you have to pay and the income reinvested on the reinvestment date. The actual fund performance can be viewed on the Minimum Disclosure Document. The Manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate
Head of Fixed Interest - Sanlam Investment Management
The Fixed Interest Investment team specialises in the South African market but also manages investments in Europe, Namibia and the UK. Chris became head of the team in 2010, taking on management of institutional and retail portfolios with a market value of more than R105 billion. He has an MA in Economics with distinction from the University of the Orange Free State and an MSc in Finance from the University of London. Before joining Gensec as an Investment Economist in 1999, he was also a member of the Macroeconomic Policy Unit at the South African National Treasury.
Income funds derive their income from interest-bearing instruments as defined. The yield is a
current yield and is calculated daily.
Total Expense Ratio (TER) | PERIOD: 1 April 2013 to 31 March 2016
Total Expense Ratio (TER) | 0.49% of the value of the Financial Product was incurred as
expenses relating to the administration of the Financial Product. A higher TER does not
necessarily imply a poor return, nor does a low TER imply a good return. The current TER may not
necessarily be an accurate indication of future TER’s.
Transaction Cost (TC) | 0.05% of the value of the Financial Product was incurred as costs relating to the buying and selling of the assets underlying the Financial Product.
Transaction Costs are a necessary cost in administering the Financial Product and impacts Financial Product returns. It
should not be considered in isolation as returns may be impacted by many other factors over time
including market returns, the type of Financial Product, the investment decisions of the investment
manager and the TER.
Total Investment Charges (TER + TC) | 0.54% of the value of the Financial Product was incurred
as costs relating to the investment of the Financial Product.
The portfolio manager may borrow up to 10% of the market value of the portfolio to bridge
insufficient liquidity. This fund is also available via certain LISPS (Linked Investment Service
Providers), which levy their own fees.
In April 2016 African Bank’s curatorship effectively ended. The old African Bank (ABIL) was split
into a ‘good’ (ABK) and ‘bad’ (RDS) bank. 80% of all senior unsecured exposure to ABIL was
rolled into instruments issued ABK, while a 10% cash repayment was received and 10% of
nominal exposure remains in RDS. The ABK bonds will receive interest at the same rate as
previous ABIL instruments and start to mature after a 2 year interest-only period. Recovery
expectations w.r.t the 10% exposure in RDS is low at this stage, although recent results from African Bank were more positive than expected.
Traditionally, investment advice come with a fee of up to 1%. But our smart online system is working to make investing cheaper and more profitable for you. The management fee you do pay is based on the fund selected and calculated on your total contributions, and then applied to the overall value of your portfolio.
YOUR INVESTMENT WILL NOT CHARGE THE FOLLOWING FEES
SO YOU’RE ONLY CHARGED THE RELEVANT FUND-MANAGEMENT FEE
Sanlam Investment Management (SIM) is the local active asset management house within Sanlam Investments. When choosing a fund managed by us, you have on your side one of SA’s largest and most reputable, risk conscious investment teams, consistently meeting or exceeding our benchmarks. Sanlam Collective Investments has appointed SIM as the asset manager for its unit trust funds, catering for the full spectrum of risk profiles.
The Fund reached its five-year track record during the second quarter of 2016. The
performance ranks favorably compared to the peer group and the benchmark,
indicative of strategies employed in the Fund which aim to deliver sustainable
outperformance. Yield enhancement is pursued by using a combination of both
interest rate and credit opportunities. The Fund’s track record so far demonstrates
that it is possible to outperform during both increasing and decreasing interest rate
cycles, as well as favourable and unfavourable credit market environments.
Credit spreads have been widening since the end of 2014, and during the last year
we have been able to identify opportunities for the Fund which offer significant
value. Spreads in the secondary market have been trending higher, but in particular
new issuances in the primary market have been pricing at levels which offer value
compared to previous years and we have been investing for the Fund in some of
these opportunities during the course of the year. We have also been able to source
and participate in a number of private placements for the Fund which we believe will
offer an added level of relative value.
The South African Reserve Bank’s Monetary Policy Committee decided to keep the
repo rate unchanged at 7.0% at their scheduled meeting in May after previously
increasing interest rates at both their scheduled meetings in January and March by
a total of 75 basis points. Compared to 2015, interest rates at the shorter end of the
curve have been trading 120 basis points higher so far this year while currency
weakness and inflationary pressures have led to the aforementioned two policy rate
hikes - both in the first quarter of 2016. The market subsequently started pricing in a
lower probability of further interest rate increases towards the end of the second
During the second quarter the major credit rating agencies reviewed their credit
rating for South Africa. All three affirmed their investment grade ratings: Moody’s
(reviewed 6 May) and S&P (reviewed 3 June) attached a negative outlook while
Fitch (reviewed 8 June) has a stable outlook attached to their rating. The same or
similar issues are echoed by each of the credit rating agencies: the economic
growth outlook, stabilisation of government debt ratios, political stability and the
strength of South Africa’s institutions, reliable sources of energy, labour reform and
regulatory policies that serve to attract investment activity in the country rather than
deter it. The importance of the local policy responses taken irrespective of credit
rating downgrades that may (or may not) materialise are important to monitor. With
the spotlight on policymakers and threat of credit rating downgrades looming, the
pressure is rightfully on to implement reforms and address the legitimate concerns
that credit rating agencies are highlighting.
Local yields increased significantly towards the end of 2015 and we have been
waiting for the appropriate time to adjust the interest rate risk exposure in the Fund.
The market offered a good opportunity to do so during June when interest rates
traded at more favourable levels. The statements and forecasts of the South African
Reserve Bank’s Monetary Policy Committee (MPC) appears to signal that we are
now nearer to the end of the hiking cycle, while the market is also pricing in a lower
probability of significant further policy rate increases. Following the May MPC
meeting and with credit rating agencies’ reviews at bay for the time being, the curve
positioning of the Fund was adjusted and the interest rate risk was increased during
June, which was timeously executed and has already been to the benefit of the
Fund’s performance during the month.
During the quarter investments were made in subordinated debt issued by FirstRand
Bank and Standard Bank. We were able to secure levels which are now more
reflective of the risks associated with the regulatory framework as well as investing
lower down the capital structure. Bank funding spreads have almost doubled over
the last three years and are offering better value. In particular subordinated paper is
now available at levels we believe is reflective of the risks involved. We restricted
the term risk and the exposure to these investments to limit concentration risk. We
believe South Africa’s banking sector is well capitalised with relatively strong
balance sheets to withstand adverse shocks - even in the event of a downgrade of
the South Africa’s sovereign credit rating and the associated potential for an
increasing interest rate environment.
We invested in government guaranteed Eskom debt for the fund after having very
limited exposure for the last two years. Funding spreads (the interest rate premium
above South African government bonds) of state-owned entities has roughly
doubled over the last two years and the Fund benefitted from decreasing exposure
in mid-2014 and having limited exposure during the subsequent period. At current
levels we believe it is an appropriate time to re-enter into a position. We
acknowledge the potential impact of a sovereign credit rating downgrade on South
African State Owned Enterprises (SOEs), which would be detrimental from a funding
point of view: if South African government bond yields increase further then this
could lead to a material increase in borrowing costs for these entities. National
Treasury surveyed the SOEs during the first half of 2016 to assess the potential
impact of a sub-investment grade downgrade on their debt: roughly half of creditors
raised concerns on the back of a downgrade, while some indicated that they require
additional government guarantees or cash transfers, which adds to government’s
contingent liabilities. We believe that the current spreads on government guaranteed
Eskom debt are sufficient compensation for the risks involved and present an
attractive investment opportunity for the Fund.