Fund man­ager

Finweek English Edition - - FUND IN FOCUS -

spend their days think­ing about macroe­co­nomics – what is the out­look for things like in­fla­tion, growth, ex­change rates, and there­fore in­ter­est rates? Higher in­ter­est rates mean ex­pec­ta­tions of higher yields in the bond mar­ket, and there­fore lower prices. Then they also con­sider credit-spe­cific fac­tors re­lated to sec­tors, gov­ern­ments and com­pa­nies.

Coro­na­tion Bond Fund man­ager Nis­han Ma­haraj says they are pre­dict­ing in­fla­tion to reach a peak of ap­prox­i­mately 7% early next year and av­er­age just above 6% for most of the year, which is why the South African Re­serve Bank in­creased and will con­tinue to in­crease rates. On the flip side, the growth out­look is very poor and is prone to futher de­te­rio­r­i­a­tion, im­ply­ing a very sub­dued rate-hik­ing cy­cle rel­a­tive to history. Cur­rently, they are see­ing value in bonds with a longer ma­tu­rity pro­file, Ma­haraj says.

The fund’s off­shore ex­po­sure is mainly in Brazil­ian and Mex­i­can gov­ern­ment bonds, which in to­tal ac­count for about 4% of the 10% off­shore ex­po­sure, with the rest in­vested in US dol­lar­de­nom­i­nated debt, partly to pro­vide a nat­u­ral hedge against lo­cal du­ra­tion.

Lo­cally, it is hold­ing se­nior bank debt and has some ex­po­sure to cor­po­rate debt, such as Lib­erty and Im­pe­rial, in ad­di­tion to gov­ern­ment bonds. “We’ve been stay­ing away from state-owned en­ter­prises that’ve had bal­ance sheet prob­lems,” Ma­haraj says. These in­clude Eskom, where Coro­na­tion is con­cerned that the bal­ance sheet risk is not ad­e­quately priced in. Transnet is one ex­cep­tion, as they feel in­vestors are fairly com­pen­sated for risk, Ma­haraj says.

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