PRIVATE WEALTH BOND FUND - Q1 2020 - Nedbank Private Wealth
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PRIVATE WEALTH BOND FUND
Q1 2020
Nedgroup Private Wealth (Pty) Ltd Reg No 1997/009637/07, trading as Nedbank Private Wealth. Authorised financial services provider (FSP828), registered
credit provider through Nedbank Ltd (NCRCP16) and a member of JSE Ltd through Nedgroup Private Wealth Stockbrokers (Pty) Ltd (NCRCP59).PERFORMANCE OVERVIEW
It has been a tough and volatile start to 2020. The combination of COVID-19 worries, an oil supply war between
Russia and Saudi Arabia which sent the oil price tumbling and the prospects of a global recession have weighed on
markets. Internationally, risk assets sold off across the board, with emerging market assets and currencies hardest hit.
The VIX spiked to 82.7, the highest level ever, surpassing the high of 80.9 during the Global Financial Crisis.
With much of the world in lockdown, the impact from the sudden stop to economic activity has been cushioned by
coordinated efforts from monetary and fiscal policy. The global fiscal response has been meaningful, especially from
countries with more policy space. While critical to address this health crisis, budget deficits and debt levels across the
globe are due to expand significantly as a result. Central banks across the world have cut interest rates, with
noteworthy moves from the US Federal Reserve, which cut interest rates by a cumulative 150bps over the first
quarter. Locally, the SA Reserve Bank (SARB) also acted swiftly and decisively with multiple interest rate cuts
amounting to 225bps by the middle of April. With unanimous votes from the committee members, the magnitude and
timing of these actions acknowledge a benign inflationary backdrop and a lacklustre economy which will face major
disruption due to the lockdown. The SA Reserve Bank remains very data dependent and focused on risks, but with
global central banks maintaining an accommodative stance and inflation data very benign we see potential for further
interest rate cut(s).
South Africa entered its own lockdown period with recessionary economic conditions and a 2020 Budget that revealed
challenging fiscal metrics, continued pressure from SOE’s and a lack of debt consolidation. Even these difficult metrics
are contingent on the ability to decrease expenditure via public sector wage negotiations. This execution risk, in
addition to the impact from the coronavirus crisis, prompted credit ratings agencies Moody’s and Fitch to downgrade
the credit rating of the sovereign further and retain a negative outlook. An unfortunate but not unexpected move, which
now leaves South Africa’s credit rating firmly in sub investment grade territory. With a lot of bad news priced in, the
market had already weakened ahead of the announcement, overshadowed by the global crisis and the news that the
WGBI rebalance would be delayed to the end of April.
Locally, the market selloff was indiscriminate and severe, discounting the potential impact of a global and local
lockdown, with only cash holding up. The All Bond Index suffered a -9.7% decline in March, erasing much of the
strong performance from 2019 and bringing first quarter performance to -8.7%. Despite the meaningful correction in
the asset class, the market looks forward and since the end of March, the asset class and the Fund have already
started to recover.
The Bond Fund has a balanced and diversified stance and continues to follow this strategy as we calibrate the
opportunities and risks currently present in this fluid environment. Throughout the last year, we accumulated long
dated bonds when they offered value. This was largely against a backdrop of easier monetary conditions globally and
local fiscal concerns. As such we have maintained a larger cash position than usual to mitigate against capital risk and
allow optionality when risk events create long term opportunities. Our exposure to corporate credit and SOEs, where
we have opted for high quality names and government guaranteed exposure, create further diversification. This has
mitigated the downside somewhat, although the fund has certainly not been unscathed.
With this backdrop, the fund delivered -10.0% in the first quarter, underperforming its benchmark (-8.7%) and the peer
group average of -8.3%%. This was largely a result of our exposure to longer dated bonds. In addition, our cash
position allowed the fund to buy local bonds at very attractive valuations as prices weakened throughout March. These
two factors weighed on the March performance and the longer-term numbers, but we believe, should position the fund
well for future returns given the yield enhancement these investments offer. Over the longer term, the fund has
compared well with its benchmark and peers and we continue to focus on valuations and the strategy that helped it
achieve that track record.
Given the benign inflationary backdrop in South Africa and broadly accommodative stance of global central banks, we
believe SA bonds continue to offer attractive real returns. This is balanced against a difficult fiscal position for the
country, which also remains vulnerable to external shocks and a volatile currency. As such we have been measured in
PAGE 2 OF 3adding opportunities, phasing in as the market weakens. Although the uncertain environment may be with us in the
near term, we continue to follow our strategy and focus on the risk-reward trade off and the price we pay for assets,
which currently provide a wonderful starting point to build long term value for unit holders.
STRATEGY
The Fund maintains a balanced approach, with exposure to short and long-term assets, as well as reasonable
exposure to less liquid, shorter dated, quality corporate paper (no more than 2% of the fund is exposed to any one
non-government issuer) and longer dated bonds issued by state owned enterprises which the manager believes to be
of similar credit risk as the SA government. The Fund has exposure to quality corporate names such as Netcare, MTN,
Bidvest, Discovery and Standard Bank.
PAGE 3 OF 3NEDGROUP INVESTMENTS PRIVATE WEALTH
BOND FUND
MARCH 2020
RISK RATING INVESTMENT APPROACH
The appointed investment manager continuously reviews the fund's allocations. Changes to the holdings of the
fund are made based on the prevailing economic and market conditions. The investment manager adopts both a
top-down and bottom-up approach in developing strategies. A strong emphasis is placed on risk adjusted returns
and the probabilities of outcomes as priced in the markets. The fund manager aims to assess the implications of
various scenarios on our markets and the pricing of domestic fixed income assets.
LOW MEDIUM HIGH
PORTFOLIO PROFILE
The portfolio is suitable for investors who require specific exposure to the South African bond market as part of their
overall investment strategy. The portfolio typically displays higher volatility than a money market portfolio, but lower
RISK REWARD PROFILE volatility than a general equity or balanced portfolio.
For credit and income instruments, while unlikely,
capital loss may occur due to an event like the
default of an issuer. The portfolio typically
displays higher volatility than a money market 2
portfolio, but lower volatility than a general equity PERFORMANCE
or balanced portfolio.The portfolio is suitable for
investors who require specific exposure to the Period Portfolio Benchmark
South African bond market as part of their overall 1 year pa -4.8% -3.0%
investment strategy.
3 Years pa 4.1% 5.3%
GENERAL INFORMATION 5 Years pa 4.7% 5.2%
7 Years pa 4.9% 5.5%
BENCHMARK / TARGET RETURN
10 Years pa 6.9% 7.4%
All Bond Index
Highest 1 year return 20.0%
Lowest 1 year return -4.8%
INVESTMENT MANAGER ASSET CLASS
Nedgroup Investment Advisors (Pty) Ltd is The annualized total return is the average earned by an investment each year over a given period of time.
authorised as a Financial Services Provider
under the Financial Advisory and Intermediary
Services Act (FSP No. 1652). MATURITY SPREAD
Maturity Spread % Spread
ASISA CATEGORY 0 - 1 year 11.20%
South African Interest Bearing Variable Term 1 - 3 years 7.06%
3 - 7 years 8.43%
REGULATION 28 COMPLIANT 7 - 12 years 19.40%
No >12 years 53.90%
Total 100.00%
INCEPTION DATE
01 May 2004
FUND SIZE
R 504 Million PORTFOLIO STRUCTURE
1
NET ASSET VALUE 53.90%
927.14 cpu
MINIMUM INVESTMENT
Lump sum: R50,000
0 - 1 year
INCOME DISTRIBUTION 1 - 3 years
Frequency: Quarterly 3 - 7 years
March 2020: 22.01 cpu
7 - 12 years
Previous 12 months: 89.64 cpu
11.20% Greater than 12 years
FEES
Annual management fee (excluding VAT): 0.50%
19.40% 7.06%
Total expense ratio 0.62% 8.43%
Transaction costs 0.00%
Total investment charges 3 0.62%
MINIMUM DISCLOSURE DOCUMENT Published: 17 April 2020NEDGROUP INVESTMENTS PRIVATE WEALTH
BOND FUND
MARCH 2020
SINCE INCEPTION CUMULATIVE PORTFOLIO PERFORMANCE
The graph shows growth of R5 000 000 invested in the portfolio plotted against the fund's benchmark the All Bond Index as well as the average of the domestic ASISA South
African Interest Bearing Variable Term category.
Mandatory disclosures:
1. Funds are valued daily at 15:00. Instructions must reach us before 14:00 (12:00 for Nedgroup Money Market Fund) to ensure same day value. Daily prices are available on request from your
relationship manager.
2. Performance is calculated for the portfolio and individual investment performance may differ as a result of initial fees, the actual investment, the actual investment date, the date of reinvestment
and dividend withholding tax. Data source: © 2015 Morningstar.
3. Total Expense Ratio (TER), expressed as a percentage of the Fund, relates to expenses incurred in the administration of the Fund. A higher TER does not necessarily imply a poor return, nor
does a low TER imply a good return. The current TER may not necessarily be an accurate indication of future TER’s. Transaction Costs (TC), expressed as a percentage of the Fund, relates
to the costs incurred in buying and selling the underlying assets of the Fund. TC are a necessary cost in administering the fund and impacts fund returns. It should not be considered in isolation
as returns may be impacted by other factors over time including market returns, the type of fund, the investment decisions of the investment manager and the TER. The Total Investment
Charges expressed as a percentage of the Fund, relates to all investments costs of the Fund. Both the TER and TC of the Fund is calculated on an annualised basis, beginning January 2017
and ending December 2019.
Whilst Nedbank Private Wealth offers you a choice of investment services, the underlying funds forming part of Nedbank Private Wealth strategy solution, are managed by Nedgroup Investments.
More specifically, Nedgroup Collective Investments (RF) Proprietary Limited, is the company that is authorised in terms of the Collective Investment Schemes Control Act to administer the Nedgroup
Investment Private Wealth unit trust portfolios. It is a member of the Association of Savings & Investment South Africa (ASISA). Contact: Nedgroup Investments, P O Box 1510, Cape Town 8000,
info@nedgroupinvestments.co.za, Tel 0860 123 263 (RSA only). The Standard Bank of South Africa Limited is the registered trustee. Contact: Standard Bank, P O Box 54, Cape Town 8000, Trustee-
compliance@standardbank.co.za, 021 401 2002.
Unit trusts are generally medium to long term investments. The value of your investment may go down as well as up. Past performance is not necessarily a guide to future performance. Nedgroup
nvestments does not guarantee the performance of your investment and even if forecasts about the expected future performance are included you will carry the investment and market risk, which
includes the possibility of losing capital. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Certain unit trust funds may be subject to currency fluctuations due to its
international exposure. Nedgroup Investments has the right to close unit trust funds to new investors in order to manage it more efficiently. A fund of funds may only invest in other unit trust funds, that
levy their own charges, which could result in a higher fee structure. A schedule of fees and charges and maximum commissions is available on request from Nedgroup Investments. For further
additional information on the fund, including but not limited to, brochures, application forms and the annual report please contact your relationship manager.
Contact
Nedbank Private Wealth
Contact suite 0860 111 263
email: contact@nedbankprivatewealth.co.za
Visit www.nedbankprivatewealth.co.za for further details
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