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.
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.