says that the fund has been selling down its l arge position i n nominal government bonds towards the end of last year, prior to the rally that was seen i n global bond markets i n January. Nominal bonds currently account for 15% of the portfolio, after having been in the high teens. “Since January, bonds have been spending this year moving higher. But we took the decision last year to minimise our exposure as it moved into fair value territory,” says Moyle. The S o uth Af r i c a n 1 0 - year government bond yield now stands just below 8%.
Moyle expects inflation to be higher next year. “We don’t make explicit inflation targets, but we do l ook at consensus forecasts. Inflation is forecast to bounce back into next year. We have seen some forecasts as high as 7%, but we think it’s reasonable that it will be i n the upper reaches of the South African Reserve Bank’s inflation targeting band,” says Moyle.
The exposure to local listed property has also been reduced. “We entered the year overweight with about 1 0% in l i sted property. We now have about 6.5%. Despite the total return f rom the asset class expected to be in the low double digits, I think the asset class is looking expensive and that is why we have been getting out,” explains Moyle.
The reductions in listed property and nominal bonds have seen the proceeds invested in cash. Like many other investors, Moyle believes foreign equities are more attractively priced than local equities. “For t he asset cl ass as a whole, we are overweight. We have created the local e quit y por t f ol i o i n r e l ati on t o t he Shareholder Weighted Index (Swix). In the offshore equity portfolio we use a variety of funds – in-house Prudential group funds, third-party funds as well as ETFs to get that exposure,” he says. The fund was recently voted the best in its category at the recent Morningstar Awards. The fund is ideally suited to investors who need a combination of reliable income, as well as the ability for their investments to keep pace with inflation.