NAV on 2019/09/16
|NAV on 2019/09/13
|52 week high on 2019/09/12
|52 week low on 2018/09/17
|Total Expense Ratio on 2019/06/30
|Total Expense Ratio (performance fee) on 2019/06/30
Old Mutual Unit Trust Managers (RF) (Pty) Ltd.
BEASSA ALBI (1 to 3 year) Index
Wikus manages a range of fixed interest portfolios, which include the Income Fund, Enhanced Income Fund, Namibia Enhanced Income Fund and the fixed interest component of the Real Income Fund.
Wikus joined Old Mutual Investment Group in October 1999 as a fixed interest portfolio manager from ABN AMRO Securities. He started his career in the Economics Department of the South African Reserve Bank. In 1995, he joined ABSA Bank Treasury as a treasury economist and pursued this position until 1997.
Old Mutual Namibia Enhanced Inc comment - Jun 19
Our main concern regarding the bond market remains the strong link between lacklustre economic growth and the lack of fiscal consolidation. More specifically, this points to the rising debt burden of the state, which arises as a consequence of the lack of fiscal consolidation. This continues to threaten the country’s sovereign risk profile and places pressure on domestic funding costs. The risk of a failed economic recovery has certainly not dissipated; with this firmly supported by disappointing first quarter GDP data. This makes us question the quality of tax revenue collections, and consequently the state of health of the tax base, which in turn keeps the risk of a budget deficit overrun at elevated levels. The financial burden of poorly managed SOEs on state finances has reached a point where the delivery of a credible national budget is nearly impossible in the absence of a substantial remedial action for the unfolding financial disaster. The proverbial chickens, mainly in the form of Eskom, have come home to roost and this requires more than the usual liquidity provision. Addressing solvency is an entirely different matter, requiring more than simply kicking the can down the road via more liquidity bail-outs.
On the monetary policy front, we maintain our view following the Monetary Policy Committee’s (MPC) decision to keep the repo rate stable in May 2019, that the central bank will remain hostage to the opposing forces of a lacklustre economic growth outlook and limited upside risks to inflation in light of the strong disinflationary environment. This is best reflected by the recent split decision by the MPC members, with two members voting for a rate cut. Although this implies a higher probability of a rate cut in the near term, we are sticking to a stable policy path for now, but acknowledging that the risk is to the downside in light of weak economic growth and strong disinflationary forces.
With the above in mind, we continue to endeavour to strike a balance between avoiding capital loss in the case of a market sell-off and losing out on the accrual offered by a steeply sloped yield curve. We have also considered the fact that long-dated nominal bonds are currently trading at an attractive real yield of around 4%. So, while our broad interest rate investment strategy remains defensive, the modified duration variance of -0.2 is some way off the maximum allowed position of -1.0. This acknowledges reasonable valuation, which partly offsets the relatively poor investment theme.
The Fund outperformed the benchmark by 0.5% on a net of fee basis for the 12-month period ending June 2019. The overall defensive modified duration position and accrual from higher yielding, low modified duration variable rate bonds were the main positive contributors. The holding of fixed rate bonds also attributed positively as these bonds benefitted from the bull rally at the short end of the yield curve during the last few months.
In light of our cautious investment stance, the fund is conservatively positioned. In terms of interest rate risk, this is demonstrated by the fund’s total modified duration position, currently at just more than half of the maximum allowed mandate limit of 2.0. This is mainly the result of the deliberate strategy to hold a significant portion of instruments with a relatively low level of interest rate volatility. The 39% variable rate bond holding forms the single biggest block representing this strategy. This well diversified holding of carefully selected nongovernment instruments was marked-to-market at an average weighted modified duration of 0.14 and a weighted average yield to maturity of 8.9% at the end of June. Similarly, the holding of fixed rate instruments with a term to maturity shorter than 13 months is also relatively high at 34%, with close to 30% of this holding bought at yields just above 8.0%. The holding of fixed rate bonds totalled 23% of the fund, 11% of which with a term to maturity shorter than seven years and benefitting from bullish rate expectations as well as credit accrual. At the end of June, the balance of the fund holding comprised of the R186 (maturity 2026) and a small 3% holding of short-dated inflation-linked bonds.
Looking forward, we will continue to look for investment opportunities in low duration variable rate notes in an effort to enhance the fund’s average yield with negligible interest rate risk. Although the inflation outlook remains particularly benign, inflation-linked bond yields have stabilised at slightly elevated levels, thereby increasing its relative attractiveness to cash in particular. We are of the view that the local bond market is getting ahead of itself with respect to its pricing of the extent of near term monetary policy easing. This offers a potential opportunity to reduce the R186 (maturity 2026) holding.
This actively managed fund invests in a wide range of Namibian and South African interest-bearing assets (for example, money market instruments, bonds, listed property and preference shares). The fund manager moves actively between these assets, based on a relative value approach.
With no restrictions on the average duration of the portfolio, the fund may hold both short- and long-term securities. This gives greater flexibility in taking advantage of interest rate trends and thus to maximise capital gains and income yields. Interest income can be reinvested to generate further growth, or paid out to supplement income. With a secondary focus on capital gains, the fund will maintain a high quality bond exposure and seek out listed property companies showing good prospects for growth and yield.