For those seeking stable real returns
The fund aims to return CPI + 3 percentage points per annum through a full interest rate cycle.
Fund manager insights:
The Prescient Income Provider Fund is classified as a low-risk fund that protects against inflation in a stable and consistent manner. It is appropriate for investors seeking stable real returns and aiming to maximise income via exposure to primarily the South African money and bond markets, says Meyer Coetzee, head of retail at Prescient Investment Management.
To meet investment objectives, the fund invests in local and offshore money markets, bonds, property, preference shares, inflation-linked bonds and derivatives. According to Coetzee the ultimate objective is to avoid negative surprises that might result in the overall portfolio under-performing inflation.
For example, if the interest yield on the portfolio is 12%, the portfolio can afford increased exposure to more volatile assets like property since there is a buffer of safety between the yield of 12% and inflation of about 6%, should property returns disappoint over the shorter term. If the yield is only 6%, the portfolio can take virtually no risk as any negative surprise would result in the fund under-performing inflation – something that must be avoided at all times.
Meyer says the fund does not invest in equities, apart from a very small allocation to preference shares. “However, equity and geopolitical risk spill over into the interest-bearing markets and can create volatility and capital losses,” says Meyer. During times of uncertainty or when the return payoff for taking risk is not in the investor’s favour, the default position in the portfolio is to hold interestbearing assets with short duration, i.e. with low sensitivity to interest rate spikes, ensuring that the credit exposure is to solid names, like the big five banks primarily. They are also cognisant of the risk that currency fluctuations, especially rand strength, can bring to the portfolio.
Why finweek would consider adding it:
The fund targets inflation plus 3% a year over the long term and has met that target comfortably since inception. It also has a risk target of not losing capital through negative returns over any threemonth period, which also has been consistently achieved since inception. The fund has been the top performer in its peer group, the Asisa Multi-Asset Income sector, since inception.
Recently the fund won a Raging Bull Award for the Best South African Interest-bearing fund for its performance over three years to 31 December 2015.