Page 165 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Fund Manager Interviews

Economic growth continued to be impeded by concerns of a second and third wave of Covid-19
infections, which played out during the first half of 2021. Interest rates remained low throughout
the period making it challenging to maintain competitively priced assets in the portfolio whilst
avoiding excessive interest rate and liquidity risk. The vaccine rollout both locally and abroad
provided some stability in aiding the post-pandemic recovery. Despite the challenges faced during
the year, we managed to maintain the returns expected from money market funds by diversifying
the assets in the fund in line with the investment objective.
In terms of risk management, what methods or strategies are you able to use to protect your
clients' investments?
A range of strategies are employed to manage the risk within the portfolio. The most effective
has been to diversify across the various issuing entities. We therefore have exposure to
government investments such as treasury bills, rated bank investments and to a lesser degree
corporate and commercial paper. The fund also manages liquidity and term risk by ensuring that
the weighted average duration is always within limits and is adjusted as the interest rate
environment changes.
Please comment on the year ahead and, if possible, estimate the performance of your fund
over 2 or 3 years. What are your targets and objectives for the year ahead?
We remain cautiously optimistic about the year ahead as the world emerges from the effects of
the Covid-19 pandemic. Although positive signs in the economy remain few and far between, we
are hopeful of the impact that the vaccination programme will have and the resilience of the
market place to return to some semblance of normality. Sovereign rating adjustments, struggling
SOEs and an ailing fiscus are of concern and remain a threat to growth and overall economic
wellbeing. Interest rates will remain low but we anticipate the first signs of upward revisions to
occur during the first or second quarter of 2022. Our money market fund is benchmarked against
the STeFI composite money market index and is positioned to deliver returns in line with, or better
than this defined target.
Please give your views regarding interest rate trends and the yield curve over the next 1 to 2
years. What interest rates can investors expect? Do you anticipate further repo rate cuts?
Our interest rate view is as follows:
It is anticipated that growth will remain subdued favouring lower rates over the near term.
Although volatility in the exchange rate may manifest in the near term it is not enough to
move yields significantly.
Benign inflation will have minimal short-term effect on yields.

It is expected that the MPC will keep rates on hold for the rest of 2021. The continuous
decline in private sector credit extension (PCSCE) will however put downward pressure on
yields.
There is no immediate threat from a sovereign credit rerating but the situation remains
tenuous.
Our local yields remain attractive relative to our peers but other asset classes are still being
favoured right now.
Forward yields continue to predict upward pressure on yields.
Foreign flows remain negative, and assets are still moving away from interest bearing asset

classes into equities and multi-asset vehicles.
Government borrowing has decreased and is expected to remain subdued.
Sentiment is negative and event risk remains high.

163
Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts