ABSA BOND FUND
- Certificate for Best South African Interest-Bearing Variable-Term Fund (straight performance over three years to December 31, 2021)
- Certificate for the Best South African Interest-Bearing Variable-Term Fund (risk-adjusted performance over five years to December 31, 2021)
- Raging Bull Award for the Best South African Interest-Bearing Fund (straight performance over three years to December 31, 2021)
The Absa Bond Fund provides investors with well-diversified exposure to the South African Bond market as well as other interest-bearing instruments. It has delivered the top returns over three and five years in the South African Interest Bearing category (10.29% and 10.01% annualised, respectively), outperforming its benchmark, the All Bond Index, by almost a full percentage point over five years. These returns have come with low risk to investors, as one would expect from an interest-bearing investment.
Personal Finance put some questions to James Turp, head of fixed income at Absa Asset Management, and portfolio manager of the fund.
Please outline your investment philosophy/strategy regarding the fund.
The Absa Bond Fund aims to beat its benchmark at the lowest acceptable level of risk. This strategy has notably delivered strong periods of outperformance during periods of increased volatility, which has been a signature characteristic of the asset class. Using this philosophy, the fund focuses on delivering the most attractive risk-adjusted returns over the short and long term. This approach does not seek to return the highest yield available but rather the best strategic return given known risks. The fund leverages off intense fundamental and technical analysis of the investment environment, focusing on key influences to the structural bond market such as inflation, monetary policy, term-premia and liquidity risk. A low-risk conservative approach combined with an active management style has helped the fund deliver attractive alpha to our valuable investors. Duration calls are expressed using liquid government bonds relative to the All Bond Index, whereas credit positioning is focused toward the more liquid, higher-quality issuers.
To what do you attribute your fund's outperformance over the last few years, and specifically during the pandemic?
The fund’s outperformance is largely attributable to its conservative approach to the asset class and consistency of process in the fund’s management. The strategy of delivering the most attractive risk-adjusted return, and not simply accumulating the highest available yield, is the starting point to the fund’s performance over the long and short term. The active approach to portfolio management attempts to structure a defensive position to benefit from the prevailing macro-economic environment with minor active adjustments in line with structural changes to the yield curve. The fund’s bias to outperforming during negative beta market moves whilst participating in the positive beta moves is testament to the integrity and consistency of this approach.
How are you positioning the fund for 2022, and what headwinds and tailwinds do you foresee for local bonds this year and beyond?
Looking ahead, the fund maintains its conservative positioning, while looking to outperform at low risk. South African bonds offer attractive yields across the curve and as such the fund will look to position around a near benchmark level of duration, whilst actively taking advantage of market moves.
Headwinds for South African bonds could stem from anything negatively impacting economic growth potential (such as interrupted power supply). Global factors such as geo-political tensions and changes from current economic forecasts, which could cause prolonged and higher inflation, may be challenging. Tailwinds exist and could be strengthened, should the domestic fiscal metrics continue to improve. More progress being made on the economic reconstruction and recovery plan, as well as inflation peaking early, could also be positive.
PERSONAL FINANCE