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James Turp, the Head of Fixed income, and our very own “Mr. Bond,” captured the attention of clients as he delved into the great expectations currently baked into the fixed income world.

The External Distribution Channels (EDC) team hosts monthly lunches, where we not only showcase the ABSA Asset Management franchises but also create an environment where clients and have meaningful interaction with our portfolio managers. This month we showcased the fixed income franchise. One cannot ignore the stark difference between the two lunches. The one was set in the Winelands in Cape Town, at a serene and tranquil restaurant with plenty of light and cool air flowing. The other in Rosebank in Johannesburg, in a serious and dark private room, with a Manhattan feel to it. The differences speak to the nuances within the client set and the conversation reflected that the things plaguing our retail investors in the different provinces vary due to their different client profiles. Fortunately, the sales team has dedicated individuals who understand these different locations.

While many things can differ, the consistent theme was inflation expectations and interest rate forecasts. James kicked off the lunch by asking what each individual thought about the path of interest rates for South Africa (SA) and gave everyone a chance to respond. This got everyone thinking about the current macroeconomic landscape. The conversation flowed and most participants held the view that rates would be on hold or would move marginally lower. The Central bank has done a good job of not only signaling their thinking and tempering expectations, but has also allowed for market participants to realise that the era of 50bp cuts are a thing of the past, for the foreseeable future.

After James walked the audience through the current market fundamental factors, he then focused on the funds in the fixed income stable, as shown below.

James says “the Absa Money market fund is the biggest in the country at close to R70 billion. It has high liquidity and has an AA+ rating. It is one of the flagship funds of the company.” The fund has high levels of liquidity and only invests in high quality assets.

He also suggested that the Absa Core income fund is a fantastic product for those looking for a step up from the money market fund on the yield curve. “It’s worth pointing out that within all these fixed income funds the credit is restricted not by rule, but by tactical decisions,” says Turp. “The fund is restricted to a duration of six months to a year from an interest rate risk perspective, and will typically outperform money market by around half to one percent,” Turp explains that while the fund has done more than this recently, this could turn as spreads are coming in, on the back of reduced issuance and high demand. “The performance is a good sweetener to any portfolio, particularly in uncertain times.”  

Turp also highlights that for those looking for duration, the Bond fund has done really well over the last few years, significantly outperforming the benchmark as shown below.

After good food and great wine, it’s safe to say that our own “Mr. Bond” lived up to the expectations of the clients and so do the fund returns.

Tsitsi Hatendi-Matika is Head: Retail Investment Specialist at Absa’s Wealth and Investment Management unit.