A combination of pragmatic asset allocation, the flexibility to find and act on opportunities as well as being mindful of the associated investment risks has ensured that the Sasfin BCI Flexible Income Fund achieved an award-winning 42.1% cumulative return over three years ending December 2018.
Over the last three years, the Fund’s flexible mandate together with the Fund’s size and the identifying of high yielding credit investments enabled Bradford and the investment team to take advantage of several mis-priced opportunities in the market.
After “Nenegate” in December 2015, for instance, Bradford calculated that the market had overreacted and was thus able to lock in low risk returns of over 12%.
In terms of the Fund’s asset allocation tactics, over the past 12 months, Bradford’s team bought longer-dated AAA bonds, increasing the duration of the fund and subsequently reduced the duration when markets returned to normal. He argues that at times of maximum pessimism, as had occurred in the build up to the ANC elective conference in 2017, bonds offering yields of 6% to 7% above inflation were bought for the Fund, Bradford and his team were happy to lock in these returns for their investors. This also speaks to the team being active in trying to add as much value for investors.
According to Philip Bradford, who serves as Chief Investment Officer and fund manager, the fund’s performance is a testament to the highly rigorous and disciplined investment process in trying to provide investors with high-income returns and capital preservation by flexibly investing across a range of bonds and other lower risk income assets. We aim to provide similar or better returns than that of the All Bond Index with lower volatility.
Says Bradford: “the Fund is actively managed and is suitable for conservative investors looking for a high yield, lower risk investment that can provide regular income. It is designed to be used as the income-producing portion of an investor’s asset allocation. In this low return environment, it is imperative that all efforts be made in trying to maximise return but with a risk-cognisant mindset. Whilst the fund, invests in credit instruments, there is a strong governance awareness with the interest rate and credit risk actively managed. “The Fund is currently conservatively positioned with approximately 60% in a range of fixed rate bonds, 20% in floating rate bonds and 20% in money market instruments. Within the bonds, more than 80% have AA credit ratings or better,” Bradford adds.
The Fund’s cash holding has recently increased and its relative exposure to fixed rate bonds has been reduced after the recent rally. Presently, the Fund is well positioned for any pending interest rate or credit risks.
Looking ahead at South Africa’s economic and fiscal challenges, Bradford’s team is likely to remain cautious going into the General Election in May. Global events such as the US/China trade war, Brexit, and slowing global growth will be closely watched, since, as Bradford says, a low growth environment is one that is typically better to hold bonds, as was evident throughout 2018.
Since its inception of July 2015, net of fees, the Fund has returned a cumulative 40.3%, which is ahead of its benchmark and all asset classes in Rands, including equities.