For those seek­ing sta­ble real re­turns

The fund aims to re­turn CPI + 3 per­cent­age points per an­num through a full in­ter­est rate cy­cle.

Finweek English Edition - - MARKETPLACE - Editorial@fin­week.co.za By Niel Jou­bert

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.

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