Page 190 - Profile's Unit Trusts & Collective Investments - September 2025
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Chapter 9 Fund manager interviews
effective during periods of heightened uncertainty, including Trump’s tariff announcements and local
GNU budget negotiations. Running yields remained attractive between 9.7% and 10.7% throughout
the year. Although we maintained readiness to adjust duration exposure when risk-return dynamics
became more favourable, market volatility and policy uncertainty did not provide compelling entry
points. This patient approach, while potentially missing some bond rallies, ultimately protected
against subsequent reversals and ensured consistent income generation.
In terms of risk management, what methods or strategies are you able to use to protect your
clients’ investments?
Our risk management approach operates on multiple levels to protect client investments:
Independent daily oversight: Our compliance and risk team monitor all portfolios daily,
maintaining complete separation from investment managers. They perform pre-trade and
post-trade compliance checks and monitor regulatory limits in real-time using sophisticated
software systems.
Diversification and stress testing: We minimise concentration risk across strategies, sectors,
and individual issuers to ensure independent sources of return. All portfolios are stress tested
against various market scenarios including interest rate spikes, credit spread movements,
currency fluctuations, and geopolitical events to understand potential vulnerabilities before
they materialise.
Dynamic risk response: We continuously monitor market conditions and make tactical
adjustments when needed. This includes adjusting portfolio duration during interest rate
volatility, repositioning when credit spreads change, and quickly reassessing positions
following credit rating changes or specific credit events.
Liquidity management: We actively monitor market liquidity conditions through our network of
market makers and brokers, providing insight into how quickly we can adjust positions when
necessary.
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?
The Truffle SCI Income Plus Fund aims to achieve higher yields of income than money market
portfolios, while aiming to preserve capital through actively investing in a range of predominantly
South African fixed income securities.
Although markets are ever-changing and our approach to navigating them must remain fluid,
the fund’s core objective remains constant, and we will continue to manage the fund in a way that
honours its objective.
Give your views regarding interest rate trends and the yield curve over the next 1 to 2 years.
What interest rates can investors expect? Do you anticipate further repo rate cuts?
A key driver for interest rates over the next 1 to 2 years will be the South African Reserve Bank’s
(SARB) de facto adoption of a 3.0% inflation target, marking a fundamental shift from the previous
4.5% midpoint. The SARB’s models project “roughly five more cuts over the medium term”,
potentially taking rates below 6%.
However, markets remain inherently unpredictable. While we anticipate a continued easing cycle
with further repo rate cuts, the pace is highly uncertain and may extend beyond typical forecast
horizons. Markets are currently pricing only about 1.5 additional cuts over the next two years,
reflecting this uncertainty despite the SARB’s more aggressive guidance.
The South African yield curve is currently very steep, and this steepness reflects the risk premium
investors demand for holding longer-dated bonds. This premium is affected by two major policy
areas:
Inflation risk premium (Monetary policy): This compensates investors for uncertainty around
future inflation trajectories. The SARB’s credible shift to 3.0% targeting has already begun
compressing this premium significantly. Analysis shows the inflation risk premium embedded
in 10-year bonds fell significantly as markets repriced expectations. Further compression
depends on the SARB’s continued credibility in delivering on this new target.
188 Profile’s Unit Trusts & Collective Investments September 2025
