23 Apr 2019
Pragmatism and patience secure a Raging Bull victory
The Sasfin BCI Flexible Income Fund won two coveted awards at the 2019 Raging Bull Awards held in Cape Town. We chatted to the successful Fund Manager, Philip Bradford, who also happens to be the Chief Investment Officer at Sasfin Asset Managers, to understand his recipe for success in delivering an annualised 12.06% to investors over three years.
BS: Please describe Sasfin Asset Managers’ overall investment philosophy.
PB: Sasfin Asset Managers has a multi-specialist investment philosophy and offers investors fixed income, multi-asset class, local equity and global equity portfolios. Our experienced team of investment professionals follow a rigorous and disciplined investment processes to manage risk and give our investors the best chance of achieving their investment goals.
Whilst our specialist portfolios have different risk and return objectives, certain principles remain consistent. We believe that markets are generally efficient but that opportunities will exist across the investment spectrum. Our process is therefore adaptive to changing market conditions and has a strong focus on risk management and diversification.
BS: How does Sasfin bring this approach to bear in its management of the Flexible Income Fund?
PB: The Sasfin BCI Flexible Income Fund is focussed on providing 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 the All Bond Index with lower volatility.
BS: What type of investor is the fund suitable for?
PB: The fund 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.
BS: What are the main risks for investors in the fund?
BS: We actively manage the interest rate and credit risk in the fund. The fund typically has less than half the duration than the All Bond Index.
Overall the risk in the fund is relatively low and does not invest in risky asset classes like equities and property.
BS: According to ProfileData, the Flexible Income Fund achieved a return of 12.06% over the three years to the end of December 2018. To what factors do attribute the fund’s superior performance?
- Tried and tested investment process
- Fund size
- Experienced management team
- The ability to identify market opportunities and act on the opportunities
- The fund has a flexible mandate and can adapt to market conditions and take advantage of opportunities in times of weakness.
BS: Please describe the fund’s 10 largest holdings at the end of December 2018, and the rationale for selecting these assets.
PB: 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. The reasoning is as follows - fixed rate bonds are offering between 2% to 4% above cash which is a wide margin and it's unlikely that interest rates will go up by more than 2%. Therefore, despite the risks, fixed rate bonds are likely to outperform cash comfortably over the medium to long term.
With this positioning the fund's current gross yield is just under 11% which is attractive compared to cash and other asset classes.
BS: Looking back over the past three years, which holdings made a particularly strong contribution to the fund’s performance, and what made these shares attractive in the first place?
PB: Over the last three years our flexible mandate and the size of the fund has allowed us to take advantage of mis-priced opportunities in the market. After “Nenegate” we calculated that the market had overreacted and we were able to lock in low risk returns of over 12% for many years to come. Our research also identified high yielding credit investments that were not well known to the broader market.
BS: What significant changes have been made to the fund’s asset allocation over the past year in terms of its weighting to particular assets? Why were these changes made?
PB: At times of maximum pessimism we bought longer-dated AAA bonds, increasing the duration of the fund and subsequently reduced the duration when markets returned to normal. When bonds are offering yields of 6% to 7% above inflation we are happy to lock in these returns for our investors.
BS: What challenges and opportunities do you foresee the fund facing in the year head?
PB: We are concerned about the economic and fiscal issues facing South Africa and are likely to remain cautious going into the elections in May. We are also keeping a close eye on global events like the Trade War, Brexit, the Eurozone and slowing global growth. A low growth environment is one that is typically better to hold bonds, as we saw in many cases in 2018.
BS: In light of the above, how will you be positioning the fund?
PB: We have recently increased in the cash holding in the fund and reduced our relative exposure to fixed rate bonds after the recent rally. Therefore, we are well positioned for any risks and will be able to take advantage of any weakness.