NAV on 2019/03/22
|NAV on 2019/03/21
|52 week high on 2019/03/22
|52 week low on 2018/04/04
|Total Expense Ratio on 2018/12/31
|Total Expense Ratio (performance fee) on 2018/12/31
Nedgroup Collective Investments (RF) (Pty) Ltd.
South African--Multi Asset--Income
110% STeFI Call Deposit
Nedgroup Inv Flexible Income comment - Aug 17
Global markets were characterised by a further easing of financial conditions. This was driven by increasingly dovish rhetoric from central bankers in the major economies. Lower inflation in major economies over the last couple of months has given cause for such rhetoric. This has provided a conducive environment for continued strong flow into emerging market assets and the rand has been no different, strengthening 1.4%, 0.8% and 3.5% against the US dollar, Euro and British pound respectively.
Yields on fixed assets have continued to fall across the world as financial conditions eased further and more term premia were removed from yield curves; US, UK and German 10-year government bonds all rallied between 18 and 20 basis points. Volatility implied and realised remained subdued, further driving demand for emerging market assets as investors continued their hunt for yield.
On the local front, inflation continued to decline and gives the South African Reserve Bank scope to cut interest rates at the next meeting in September. South Africa’s fiscal issues continue to deteriorate as the National Treasury recorded a record monthly deficit of 92b ZAR. This is a significant overshoot. If such underperformance relative to the budget projections is sustained South Africa’s annual fiscal deficit could breach the levels needed to maintain our current credit ratings. Other risks to the national purse emanate from the continued poor financial performance of the SOEs. Eskom has made an application for an extraordinary tariff increase circa 20% to plug their cash flow hole. The bailout of SAA is a further cause for fiscal concern.
Political noise going into the ANC elective conference at the end of the year will likely continue to increase. Over the last month this has taken the form of news campaigns by the various factions against the leaders of their opposition.
The above concerns have had little effect on the risk premium attached to investing in short-dated South Africa assets as easy offshore financing conditions have reduced risk premia significantly across the investment universe.
The Nedgroup Investments Flexible Income Fund gained 0.46 % in August, below the cash benchmark.
The domestic fixed income allocation performed well due to yield enhancement. Offshore fixed income assets underperformed as the rand strengthened against the developed market currencies. UK property detracted and preference shares were also slightly down. We continue to see UK property as cheap relative to fair value. The underlying assets are priced at crisis era discounts to gross asset value. The pound is also cheap relative to where we see fair value as the market continues to discount high levels of anxiety regarding Brexit.
We purchased offshore Steinhoff convertible bonds during the month after a selloff in the issuers equity forced these bonds to cheapen dramatically, to the point where the option adjusted credit spread presented a compelling investment opportunity. Credit spreads have tightened significantly over the last few months and most issuers no longer present compelling value relative to the credit and liquidity risk assumed. We have decided to increase our allocation to negotiable certificates of deposit issued by banks as their returns are now relatively attractive compared to corporate bonds and they have greater liquidity. Duration has remained broadly unchanged at 0.14 years. The current duration is comparable to a money market fund as we do not want to take on interest rate risk with yields at current levels. We have continued to focus on maximising the yield of the fund by accumulating good quality floating rate assets at very attractive levels. The currency exposure is 7.2% at present, with an additional 3.6% allocated to European property assets. Our offshore bond holdings offer a very favourable return profile with acceptable risk.
The current market environment creates opportunities for yield enhancement and we will add to our holdings as we see value. We will continue to focus on maximising yield, while looking for strategic allocations to the various income asset classes in order to generate additional performance.
The weighted average yield of the Nedgroup Investments Flexible Income Fund is currently 8.6%.
The portfolio is suitable for investors seeking enhanced money market returns, but who have a low tolerance for capital loss and who do not wish to make complex asset allocation decisions between cash, bonds, property and other fixed interest asset classes.