Good for a stable in­come, cap­i­tal pro­tec­tion

The fund aims to achieve a high level of sus­tain­able in­come while pre­serv­ing the sta­bil­ity of the cap­i­tal in­vested. It is skewed to fixed-in­come as­sets such as bonds, money-mar­ket in­stru­ments and listed prop­erty stocks.

Finweek English Edition - - MARKETPLACE -

In an en­vi­ron­ment where eq­ui­ties are de­liv­er­ing sub-op­ti­mal re­turns to in­vestors, stable and in­come funds are start­ing to be­come at­trac­tive in the bid to pro­tect cap­i­tal. One such fund is the Har­vard House Group’s Flex­i­ble In­come Fund.

The fund’s man­date is a lit­tle more re­laxed than those of tra­di­tional money-mar­ket type as­sets, ex­plains Wil­lie Pelser, the fund’s man­ager. The fund has a larger choice to in­vest in riskier as­sets, such as listed prop­erty stocks and even some lo­cal eq­ui­ties.

“We can move be­tween as­set classes,” he ex­plains, and adds that the fund’s ex­po­sure to the listed prop­erty sec­tor ranges be­tween 20% and 25% of the fund. This sec­tor de­liv­ers yields that out­pace in­fla­tion, ac­cord­ing to him.

Al­most half of the fund was in­vested in lo­cal bonds, ac­cord­ing to its lat­est fund fact sheet. Among the top picks were two in­fla­tion-linked govern­ment bonds.

Pelser says that in­fla­tion-linked bonds are yield­ing the “fruits” to those in­vestors who en­tered the as­set class about two years ago. Cur­rently th­ese bonds, also known as link­ers, are yield­ing neg­a­tive re­turns to those buy­ing be­lat­edly. In­fla­tion-linked bonds pay cer­tain per­cent­age points more than the of­fi­cial in­fla­tion rate.

Nom­i­nal govern­ment bonds, or that govern­ment debt with a fixed coupon rate, have al­ready dis­counted a down­grade of South Africa’s sov­er­eign credit rat­ing to be­low-in­vest­ment grade, or so-called junk sta­tus, ex­plains Pelser.

Even though a rat­ings down­grade is loom­ing, Pelser is more op­ti­mistic about the play-out of such an event on the lo­cal bond mar­ket.

“In terms of pub­lic fi­nance, South Africa isn’t close to a debt trap,” he says. Com­pared with its peers in the Brics na­tions, SA’s debt level of close to 50% of GDP isn’t close to caus­ing a con­cern for de­fault, Pelser says.

Why fin­week would con­sider adding it:

Stable and in­come funds are bedrocks in un­cer­tain eco­nomic times. With eq­ui­ties on the lo­cal bourse strug­gling to ben­e­fit in­vestors, many are turn­ing to fixed­in­come type as­sets.

Lo­cal govern­ment bonds have ex­pe­ri­enced sort of a short-term rally of late. This was mainly driven by a resur­gent cur­rency. Nev­er­the­less, the search for a proper in­come stream, es­pe­cially for pen­sion­ers, and the con­comi­tant pro­tec­tion of cap­i­tal should be at the fore­front of an in­vestor’s mind when de­cid­ing where to park money at this stage.

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