NAV on 2019/05/17
|NAV on 2019/05/16
|52 week high on 2018/05/28
|52 week low on 2018/10/25
|Total Expense Ratio on 2019/03/31
|Total Expense Ratio (performance fee) on 2019/03/31
Satrix Managers (Pty) Ltd.
South African--Interest Bearing--Variable Term
FTSE/JSE All Bond Index
Fund Manager Comment - Sep 18
Trade war between China and the US intensified
The backdrop for emerging markets (EM) deteriorated sharply during the past quarter as the global super powers (China and the US) continue to wage ‘war’ on the trade front. President Trump imposed import tariffs on another $200 billion worth of Chinese goods, to which China promptly responded with its own tariffs on $60 billion of US made goods. The Chinese Renminbi lost almost 4% against the US Dollar as the US imposed the new round of tariffs. China did not defend its currency as it usually does.
The Turkish Lira and Argentinian Peso were the worst performing currencies against the Dollar, declining by about 40%. Turkey has been in a diplomatic standoff with the US over the incarceration of an American citizen. In Argentina, investors are worried that the country may soon default on debt. The Rand traded to a low of R15.58 against the US Dollar before recovering to R14.12 as South Africa is seen by some investors as having similar vulnerabilities as Turkey, namely current deficits and a large external financing requirement. Bond Market Review The US economy continued to outpace other developed markets (DM), growing by 4.2% in the second quarter. By comparison the Eurozone grew by 2.1%. US unemployment was at a low 3.7% in September and core inflation of 2% was in line with the US Federal Reserve (Fed)’s target. As a result, the Federal Open Market Committee raised the federal funds rate by 0.25% in September and signalled that the current policy stance is still accommodative. US 10-year bond yields rose from 2.95% to 3.06% leading to a sell-off in other DM bond yields. In Germany and Britain 10-year bond yields rose 17 basis points (bps), while Japanese benchmark 10-year yields rose 9 bps. Bond yields in the US were pressured by increased supply and chances of more rate hikes.
In South Africa the sharp fall of the Rand and the rise in oil prices resulted in a deterioration of the inflation outlook. However, the SA Reserve Bank (SARB) decided not to increase the repo rate at the September meeting given the -0.7% GDP outcome for the second quarter and the lower than expected 4.9% CPI for August. The yield on the benchmark R186 bond rose 11 bps during the quarter from 8.88% to 8.99%. However, the FTSE/JSE All Bond Index managed to return a positive 0.78% for the quarter as short-dated bonds offset the capital losses on longdated bonds. We think South African bonds offer value when the 10-year bond yield is between 8.25% and 8.50%. Credit spreads continued to compress as demand outstripped supply. Bond Market Outlook The outlook for DM bonds remains poor given a combination of lower liquidity as central banks buy less government bonds, increasing inflation and larger deficits in the US.
We think yields in the US will end 2018 closer to 3%, perhaps even a little higher. However, guidance from the European Central Bank to keep rates on hold until the end of summer 2019 will have a dampening effect on yields in Europe.
The trade war between China and the US is leading to risk aversion and capital flight toward developed markets. Oil prices have risen further and pose a threat to our constructive view on bonds.
In October the Minister of Finance will deliver the Medium Term Budget Policy Statement (MTBPS). The market will be looking for continued commitment to the expenditure ceiling and for bond issuance to remain unchanged. Government has already committed to a R50 billion stimulus package, to be announced at the MTBPS. Should this stimulus package not be financed within the expenditure framework previously announced, this would be negative. We expect the SARB to raise the repo rate by 0.25% at the November Monetary Policy Committee.
The investment objective of the Satrix Bond Index Fund is to achieve a return which will equate to the annual return of the portfolio benchmark which is the BEASSA All Bond Index. This will be a passively managed portfolio which will track the BEASSA All Bond Index.
This portfolio will invest in assets in liquid form, and in high yielding non-equity securities and interest bearing securities including but not limited to public, parastatel, municipal and corporate bonds, inflation linked bonds, loan stock, debentures, fixed deposits and money market instruments. When investing in derivatives, the Manager will adhere to prevailing derivative regulations. The portfolio manager will invest in derivatives for cash flow management purposes, as this is more cost effective, and to enable the investment manager to achieve the objective of tracking the BEASSA All Bond Index more effectively.