Nedgroup shines in the bond market

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Nedgroup Investments Bond Fund

  • Raging Bull Award for the Best Domestic Fixed-interest Fund – the top performing fund on straight performance in the fixed-interest bond and income sub-category over three years to December 31, 2010.
  • Certificate for Best Domestic Fixed-interest Bond Fund on straight performance over three years to December 31, 2010.
  • Certificate for Best Domestic Fixed-interest Bond Fund on a risk-adjusted basis over five years to December 31, 2010.

The Nedgroup Investments Bond Fund scooped a Raging Bull Award and two certificates, having earned returns of 11.28% a year over the three years to December against its benchmark, the South African Bond index, which returned 10% a year over the same period.

According to Profile Data, over the five years to December, the fund earned returns of 9.84% a year against the bond index, which returned 9.34% a year. To recognise that risk management is a major factor, some awards are based on the PlexCrown ratings, and the Nedgroup Investments Bond Fund earned five Plexcrowns, which earned it a certificate for best domestic fixed-interest bond fund on a risk-adjusted basis over five years.

Nedgroup Investments outsources the managements of its funds to fund managers that it regards as the “best of breed” managers in the market. The management of the Bond Fund has been outsourced to Prescient Investment Management since the fund was launched in November 2003.

Bond funds offer you the potential for capital growth, together with a regular, high level of income. The Nedgroup Investments Bond Fund is aimed at investors who require an ongoing high level of income from their investment capital or who want exposure to the South African bond market.

Bond funds typically display higher volatility than money market funds but significantly lower volatility than general equity or balanced funds. Guy Toms, who has managed the fund with Eldria Fraser since its launch, says the duration of the bonds held in the fund has varied over the past three years, with the portfolio benefiting from last year’s fall in bond yields and rise in bond prices.

“Through 2008 to 2009, the fund was invested in short-dated or low-duration bonds, so it was protected to a large extent from the 2008 market fall-out,” he says. Toms says he uses derivatives to manage downside risk. International bond yields have weakened sharply over the past six months as the economic outlook in the United States has shown signs of improving, while sovereign debt issues continue to pose problems in the euro zone, he says.

“On the other side of the world, Australia, India and China recently hiked rates, mainly on inflation concerns, and this uncertainty has translated into volatile currency and bond markets,” Toms says.

“Looking forward, the local market has started to discount inflationary concerns and, although short-term interest rates are likely to be kept on hold for most of the year, should inflation start to raise its head, bond yields may continue to increase further. There is also an overhang of bonds bought by foreigners last year, which could add significantly to the performance of the bond market in 2011. The year is likely to be characterized by further asset price volatility,” Toms says.

The fund is positioned to benefit from falling yields and rising bond prices, while risk management techniques have been put in place should yields rise, he says. The minimum investment amount is a monthly debit order of R500 or a lump sum of R1 000.

  •  First published in Personal Finance newspaper, 29 January 2011

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