Anchored in bonds and lower-risk assets The fund aims to achieve capital growth as well as some level of capital protection in the long term. The bulk of the fund is invested in domestic bonds.
The fund is skewed towards bonds and especially lower-risk assets with exposure skewed towards debt with a shorter duration, according to Marius Oberholzer, Stanlib’s head of absolute return strategies and manager of the fund. This is in order to lessen exposure to interest rate risk, he explains.
“That said, we have been increasing our duration in our asset allocation mix as there is a growing realisation that this is no normal cycle and South Africa’s economic growth trajectory continues to slow, as is the case globally,” he says. “It’s typical for us at this point in the cycle [slowdown] that we would like to begin skewing the portfolio in this manner.”
In the meantime, Oberholzer believes much of the negative effect of a sovereign ratings downgrade of SA’s government has already been priced. With Moody’s Investors Service confirming SA’s rating at two notches above investment grade, it remains to be seen what Standard & Poor’s and Fitch will do over the next few weeks. The latter two agencies have historically been the most negative on SA’s ability to repay its debt.
“Should the market react negatively to a downgrade in the absence of new information, we would be buyers of bonds,” says Oberholzer.
The fund’s equity allocation happens through positions in futures in the Swix, Top40 Index or an equal-weighted Top40 Index or combination of indices, he explains.
“We try to avoid discussing our specific company positions, although I will say that we believe that the SA banks offer intriguing valuations and are being priced for a reasonably significant credit cycle,” says Oberholzer. “Given our view that bonds are looking interesting, it stands to reason that some of the banks potentially offer some compelling valuations albeit without Saturday night excitement levels.”
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Marius Oberholzer Fund manager and head of absolute return strategies at Stanlib