Page 158 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 9 Fund manager interviews

Comment on your investment year (January - December 2025) from a fund manager’s point
of view
For calendar year 2025, the fund delivered 24.77% (net of retail fees), outperforming its benchmark,
the JSE All Bond Index (ALBI), by 54 bps.
During 2025, South African bonds rallied strongly, with the ALBI returning 24.2% for the year,
supported by easing inflation, a flatter yield curve, and improved fiscal credibility. The bond rally was
further underpinned by the South African Reserve Bank’s (SARB) endorsement of a lower inflation
target and strong demand for long-dated government and infrastructure issuance.
Against this backdrop, the fund benefited from both favourable market conditions and active
portfolio positioning. The portfolio management team continued to identify opportunities to enhance
yield pickup relative to the benchmark through both interest rate and credit positioning, contributing
positively to performance over the period.
In terms of risk management, what methods or strategies are you able to use to protect your
clients’ investments?
We view the portfolio managers as the first line of risk management, with risk controlled through
disciplined security selection and portfolio construction. The portfolio managers are accountable for
position sizing and ensuring that portfolio risk remains aligned with client objectives.
The fund is constructed to avoid risk dominance and ensure balanced contribution to returns.
Position sizing is driven by relative value and risk contribution rather than nominal exposure. The
fund is diversified across instruments, issuers and maturity buckets, with risk distributed through
multiple value-adding strategies. No single exposure, issuer or theme dominates portfolio risk, and
all positions must meet liquidity, valuation and hedge ability requirements before inclusion.
The risk of permanent capital loss is reduced through a bottom-up process that favours quality
issuers and avoids companies with weak fundamentals or poor competitive positioning. Risk is
monitored continuously using proprietary in-house systems along with Bloomberg risk analytics,
providing real-time oversight for both the portfolio manager and the risk function.
These risk parameters ensure that portfolio positioning remains controlled, intentional and
consistent with the fund’s objective of delivering superior risk-adjusted returns over time.
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 fund’s objective is to provide superior risk-adjusted returns over and above the ALBI,
irrespective of market conditions. Specifically, the fund aims to deliver an annualised return of ALBI
plus 1%, after fees.
The 24.2% return from the ALBI in 2025 was its strongest calendar year performance since 2000,
following a 17.2% gain in 2024. Naturally, expectations for a repeat performance in 2026 should be
tempered. Looking into 2026, markets face a pivotal juncture as the global policy cycle approaches
a turning point. Central banks in core economies have delivered substantial rate cuts in 2025, while
the easing cycle is nearing its end. Key risks include municipal elections, political instability, and
foreign policy missteps. However, there are several structural tailwinds providing support for local
bonds to continue their rally. These include ongoing fiscal consolidation efforts, scope for further
local interest rate cuts, a potential reduction in SA’s risk premium driven by a lower inflation target,
and the possibility of sovereign credit rating upgrades.
On the interest rate front, the fund remains aligned with the ALBI benchmark from a modified
duration perspective, while maintaining a relatively short convexity position. The portfolio managers
continue to seek opportunities to enhance yield pickup relative to the benchmark through both
interest rate and credit positioning.
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?
We believe the South African headline inflation has already converged with the developed nations’
inflation numbers. The heavy lifting has essentially given the SARB room to cut short-term interest
rates more aggressively and has shown that the 3% point target was very achievable in this low
inflation world.

156 Profile’s Unit Trusts & Collective Investments March 2026