Impressive management strategy
The fund seeks to maximise returns from a diverse range of primarily South African bonds.
Fund manager insights:
Investors who seek the benefits of an actively managed bond fund and require exposure to bonds as part of a diversified portfolio would find the Coronation Bond Fund suitable to their needs, says Nishan Maharaj, head of Coronation’s fixed interest team and one of the fund managers.
He says the fund is strategically managed to secure an attractive return by investing primarily in a range of government and corporate bonds. “It will hold various tactical positions to benefit from the best opportunities as they emerge.”
He goes on to explain that investments are “meticulously researched and subjected to a strict risk management process. Only quality instruments of reputable institutions will be considered. All factors that could affect these investments are carefully monitored, including inflation, as well as currency and interest rates.”
According to Maharaj, the risk of losing money over periods of more than a year is low, while it is slightly higher for periods of less than a year. The primary risk exposures are to changes in interest rates and corporate credit events.
The fund invests up to a maximum of 10% in offshore fixed income assets which provides it with added levels of diversification and return enhancers.
“In constructing the portfolio, we take care not to position towards any single outcome, which makes our portfolios much more resilient and durable to unexpected market turbulence,” he explains.
Currently the fund’s yield sits at 9.9% with a modified duration of 6.6, which is very attractive when compared to the All Bond Index (Albi), which has a yield of 9% and a modified duration of 7.1, says Maharaj. (The modified duration is a formula that expresses the measurable change in the value of a security in response to a change in interest rates, according to Investopedia.com.)
“So in effect, one is invested in a fund which has a higher yield than its benchmark with much less risk. This yield can also be thought of as a proxy for return in the event of a static investment environment, or the difference between the yield of the fund and the yield of the benchmark as a proxy of expected alpha to be delivered by the fund.”
Why finweek would consider adding it:
The fund is the top quartile performer over five years and 10 years, and best performing fund in its category since the launch in 1997.
It won the certificate as Top Outright Performer for Best South African InterestBearing Variable-Term Fund at this year’s Raging Bull Awards. It was also awarded the certificate for Best South African Interest-Bearing Variable-Term Fund on a risk-adjusted basis. ■