Option for those with short time horizon
The fund aims to offer a higher yield than a money-market fund by taking advantage of the yields offered by a wide range of debt instruments, including corporate bonds.
Fund manager insights:
The Sanlam Investment Management (SIM) Enhanced Yield Fund’s performance is driven by movements in interest rates and credit markets, says Melville du Plessis, fund manager.
The fund is typically aimed at investors who have a six- to 12-month investment horizon, but is also a valuable solution for clients who have spare cash.
According to Du Plessis, yield enhancement is pursued by using a combination of both interest rate and credit opportunities.
On the interest rate side, the fund is predominantly exposed to the movements of shorter dated bonds and the actions of the South African Reserve Bank’s monetary policy committee, and the future path of the policy rate.
On the credit side, the fund looks to maximise the value that can accrue from banks, corporate and other counterparties.
Du Plessis says the fund is managed within the fixed interest team at SIM and “thus taps into the full skillset of the entire investment team, as well as the extensive credit capabilities of the entire Sanlam group.
“The fund’s track record so far demonstrates that it is possible to outperform during both increasing and decreasing interest rate cycles, as well as favourable and even unfavourable credit market environments,” says Du Plessis.
He adds that it is of course important to do thorough research and have a strong, credible investment process so as to identify and take advantage of favourable investment opportunities.
“But it is just as important to avoid making unnecessary mistakes. Although it is impossible to have perfect foresight with regard to what the future holds, appropriate risk management and avoiding undue concentration risk is one of the best safeguards against underperformance – and as such help deliver outperformance,” he explains.
“The fund was able to avoid underperformance, and thus also deliver outperformance, by having either very limited or no exposure to counters that have underperformed in the past.”
Why finweek would consider adding it:
The fund has outperformed its benchmark of STeFI + 0.5% by 0.93% per annum (net of fees) since inception and over the latest one-, three- and five-year periods.
It aims to deliver sustainable outperformance while minimising the chance of a disappointing monthly return. More than 90% of months since inception have been positive for the fund, while the few negative months entailed very small drawdowns, and the recoveries were quick. A lot of work has been done over the last year to further improve the performance profile of the fund.
It won a certificate at this year’s Raging Bull Awards for Best South African Interest-Bearing Short-Term Fund.