Page 173 - Profile's Unit Trusts & Collective Investments - March 2025

Fund Manager Interviews

Please comment on your investment year (January - December 2024) from a fund manager’s
point of view.
2024 was a year full of uncertainty. Most of the democratic world went to the polls in a “year of
elections”, South Africa included. This market uncertainty provided plenty of opportunity to fund
managers across the board. By following our process and remaining dynamic within our strategy
we generated 16.5% for investors, outperforming peers by nearly 6%.
A key driver of these returns was sourced from South African government bonds, we preferred
this position over expensive corporate credit. Government bonds were priced very well for the risk
they presented, and our investors were handsomely rewarded even before the long queues formed
at the polls.
We allocated and sized our various positions through a strong risk-management lens, ensuring
only high credit-quality issuers were included in the portfolio, avoiding any defaults or
side-pocketing. Additionally, we prioritise a deep liquidity profile, this allowed us to take
advantage of the market opportunities presented in 2024, such as global disinflation, rate cutting
expectations and fluctuations in risk sentiment.
In terms of risk management, what methods or strategies are you able to use to protect your
clients’ investments?
Our approach to risk management is centered on optimising returns while maintaining
downside protection. We focus on instruments that offer strong rewards as interest rates decline
but, more importantly, have compelling entry prices that ensure investors are rewarded even if rate
cuts do not materialise. Identifying the right entry points across our investment universe is a key
part of our strategy, allowing us to capitalise on mispriced opportunities.
We dynamically manage our interest rate sensitivity, ensuring that the portfolio’s duration
exposure aligns with market conditions while maintaining an optimal yield. Ultimately, it is this
balance that drives returns for investors. Our strategy remains simple and transparent, as we
believe that when investors clearly understand our approach and risk management framework, it
helps reduce the behaviour gap - the tendency for investors to make emotional decisions in
response to market volatility.
By investing in high-quality credit issuers, we also ensure that the portfolio is backed by
financially stable institutions with strong balance sheets and proven track records. These issuers
have a significantly lower probability of default, which provides greater capital preservation for
investors. Additionally, well-rated issuers tend to have better access to funding, reducing
refinancing risk and enhancing overall stability.
By maintaining a portfolio of high-quality, listed instruments, we ensure that we can efficiently
adjust exposures, manage risk, and meet investor redemptions without significant price
distortions. This disciplined approach allows us to construct a resilient portfolio that prioritises
both risk mitigation and return optimisation, ensuring that investors benefit from a well-balanced,
liquid, and stable fixed income strategy.
Please comment on the year ahead and, if possible, estimate the performance of your fund
over 2 or 3 years. What are your targets and objectives for the year ahead?
2025 continues in the vein of uncertainty, especially with Donald Trump as the 46th US
president, and specifically his role in foreign policy and global trade. Once again, a year that will
require a dynamic approach to managing risk and delivering returns to investors.
Despite the uncertainty, it is not likely that remaining in cash is the panacea one might think it
is, cash is a fourth quartile “fund” in our peer group, and so investors do need to take on some risk,
the real question remains: what risk will they be rewarded for?
We do not have a crystal ball and do not pretend to be able to forecast better than the next
portfolio manager, but what we can do is understand and manage risk.
Within our investment universe we are fortunate that fixed income investing has a high-level
of predictability thanks to the frequent and steady cash flows, and nearly all long-term
performance can be explained by these cash flows.

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