NAV on 2020/02/14
|NAV on 2020/02/13
|52 week high on 2019/09/30
|52 week low on 2019/04/12
|Total Expense Ratio on 2019/09/30
|Total Expense Ratio (performance fee) on 2019/09/30
Sanlam Collective Investments
Low - Medium
South African--Multi Asset--Income
110% of STeFI Call
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Northstar SCI Income Fund - Sep 19
The Northstar Income fund performed well over the quarter with a 2.3% return vs. the benchmark return of 1.8% and the strategic benchmark return of 2.0%.
The strongest attributors to outperformance have been the overweight position in short duration inflation linked corporate bonds (39bps), marginal overweight to fixed corporate bonds (25bps) with predominant holdings in high yielding shorter durations and a purchase of a longer dated maturity after the market pullback in July, and the underweight property holding providing positive attribution (15bps).
Conversely, the portfolio’s underweight foreign cash and bonds holdings (7% vs. 15%) resulted in a negative attribution of 50bps. The net result has been a 30bps outperformance of the strategic benchmark, which in its own right, performed well.
Shorter duration fixed bonds reached full value during the quarter, prompting a reduced exposure to maturities below 7 years. Post the riskoff dynamics in July, the 10 year to 20 year maturity valuations improved somewhat, which motivated a small purchase. The net effect has seen the fixed bond weighting being reduced further with a lower contribution to overall duration vs the fixed component in the strategic benchmark.
Inflation linked bond yields have continued to rise as inflation concerns have dissipated and nominal bond yields, particularly in the longend, have remained elevated. There is a strong argument that real yields, particularly around the 5 year maturity point are becoming attractively valued on an absolute basis, despite declining inflation expectations. As such, the inflation-linked weighting in the portfolio has been increased from 20% to 26% over the quarter.
Property stocks have continued to selloff, specifically those with a predominant exposure to the local economy which is struggling and puttng constraints on consumer spend and hurting the retailers. Vacancy rates continue to rise across all sectors and are becoming elevated, specifically in the office space where poor business confidence is causing tenants to downsize and the industrial space where tenants are opting for shorter leases and lower rentals stemming from electricity supply issues and increased business failures. Based on the number of building plans passed, there is a major concern that the market may be in oversupply, however the total amount of buildings completed is lagging significantly, which may mitigate this outcome. In the interim however, investors are demanding higher yields as rental growth softens, debt costs rise, operating costs rise and balance sheets weaken. We remain underweight property.
The foreign currency and bond exposure remains underweight vs the strategic benchmark weighting as a result of the Rand trading at around 20% undervalued on a purchasing power parity basis vs the US dollar. The rand has only traded at weaker levels 10% of the time historically, which took place during exogenous events such as the Global Financial Crisis and Nenegate. Other valuation methodologies also point to an undervalued rand, which supports our underweight position.
Despite the attractive Rand valuations, the portfolio maintains its 8% foreign currency weighting (post monthend). This holding should perform well in the event of a deteriorating Government debt trajectory (post MTBPS), poorly received Eskom turnaround plan, potential negative change in outlook from Moody’s and or any other poor news relating to local politics, ongoing trade tensions, challenging Brexit outcomes and a slowing global economy for example.
On an after-cost basis, the Northstar Income fund remains positioned to deliver a strong real return, coupled with a very low risk of capital loss.
The Northstar Sanlam Collective Investments Income Fund is an income portfolio with an objective to provide investors with a regular and stable income that targets inflation beating returns over the long term, while actively managing the risk of capital loss in the short term Investments to be included in the portfolio may, apart from assets in liquid form, consist of equity and non-equity securities, fixed interest instruments (including, but not limited to, bonds, corporate bonds, inflation linked bonds, convertible bonds, cash deposits and money market instruments), debentures, preference shares and property securities as well as any other income enhancing securities which are considered consistent with the portfolio's primary objective and that the Act may allow from time to time. The portfolio's equity exposure will be limited a maximum of 10% of the portfolio's asset value.The portfolio may from time to time invest in financial instruments, in accordance with the provisions of the Act and applicable legislation, as amended from time to time, in order to achieve the portfolio's investment objective. The manager may also include forward currency, interest rate and exchange rate swap transactions for efficient portfolio management purposes.The Manager may include participatory interests and other forms of participation of local and global collective investment schemes, or other similar schemes operated in territories with a regulatory environment which is to the satisfaction of the manager and trustee of a sufficient standard to provide investor protection at least equivalent to that in South Africa and which is consistent with the portfolio's primary objective. The Fund will be managed within the requirements of retirement funds prudential investment guidelines as well as the requirements of the Act. For the purpose of this portfolio, the manager shall reserve the right to close the portfolio to new investors on a date determined by the manager. This will be done in order to be able to manage the portfolio in accordance with its mandate. The manager may, once a portfolio has been closed, open that portfolio again to new investors on a date determined by the manager. The Trustee shall ensure that the investment policy set out in this Supplemental Deed is carried out.