A sta­ble fund for con­ser­va­tive in­vestors

The fund is de­signed to de­liver re­turns that are higher than that of tra­di­tional money-mar­ket unit-trust funds. A large pro­por­tion of the fund is in­vested in cor­po­rate bond in­stru­ments.

Finweek English Edition - - MARKETPLACE -

At­lantic’s Sta­ble In­come Fund is al­most en­tirely in­vested in float­ing-rate notes, ac­cord­ing to Al­bert Botha, one of the fund’s man­agers. These in­stru­ments, mostly cor­po­rate debt, de­rive their in­ter­est rate from an un­der­ly­ing bench­mark, most com­monly the Jo­han­nes­burg in­ter­bank ac­cep­tance rate, or Jibar, at which com­mer­cial banks lend to one an­other other.

“When the fund was cre­ated, in­vestors asked us to cre­ate a fund that would give them sta­bil­ity, pre­dictabil­ity and high yields,” Botha says with re­gard to the un­der­ly­ing value of cap­i­tal.

The fund aims to act like a money-mar­ket fund, but yield higher re­turns than the tra­di­tional money mar­ket, he says.

Cur­rently, the fund’s yield sits at 8.65% with an ef­fec­tive yield of 8.35% net of fees, ac­cord­ing to data from At­lantic As­set Man­age­ment. This yield is sub­stan­tially higher than con­sumer price in­fla­tion, which was 6.3% in March, ac­cord­ing to Stats SA. Thus, the fund yielded al­most 2% real re­turn.

In ad­di­tion, the fund has 76% of its hold­ings in debt is­suers with an A+ credit rat­ing or higher, less­en­ing credit risk sub­stan­tially, says Botha.

Go­ing for­ward, one of the largest risks to SA’s fixed­in­come sec­tor isn’t nec­es­sar­ily in­fla­tion, ex­plains Botha. Unique po­lit­i­cal and so­cial is­sues pose risks to lo­cal bonds, es­pe­cially the nom­i­nal gov­ern­ment bond mar­ket, ac­cord­ing to him.

Two pos­i­tive as­pects could boost lo­cal nom­i­nal gov­ern­ment bonds over the next year, says Botha. Firstly, a smooth lo­cal gov­ern­ment elec­tion, and ac­cep­tance of the re­sults could im­prove in­vestor sen­ti­ment to­wards SA, he says. Se­condly, if the coun­try could steer clear of a credit-rat­ing down­grade this year and the next, it would boost for­eign in­vestors’ ap­petites for lo­cal debt once more.

Why fin­week would con­sider adding it:

The fund is ex­tremely sta­ble with float­ing-rate notes hav­ing their in­ter­est rates re­set ev­ery three months. The fund is al­most fully in­vested in these fixed-in­come in­stru­ments with the bulk of it in very highly rated cor­po­rate names.

With the volatil­ity of SA’s po­lit­i­cal scene reg­u­larly spilling over into the bond and for­eign ex­change mar­kets, this fund would be well suited for the most con­ser­va­tive in­vestors among us who don’t want the noise of pol­i­tics to spoil good re­turns.

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