For the year ending 30 September 2018 the Income Fund produced a total return of approximately 7.9%, well above both money market rates and the multi-asset income sector average. This good outcome was achieved through securing longer term fixed deposits with the big 5 banks in 2017.

The opportunity to invest into these longer term fixed deposits presented itself due to volatility in the bond market stemming from last year's credit rating downgrades. Subsequent to securing these higher rates, bond yields declined on the perception of reduced political risk and higher economic growth in South Africa post Ramaphosa's election. The shift in the yield curve resulted in a positive re-pricing of the instruments held within the portfolio. In recent months however, most of the gains have reversed as rising interest rates in the US has placed significant upward pressure on the currencies and bond yields of emerging markets.

Although this has resulted in some price volatility over the quarter, it did not come as a surprise as evidenced by the decision to reduce exposure to long term fixed deposits by approximately 15% since the start of the year to lock in capital gains. As such, the fund is sitting with approximately 35% in short dated cash to take advantage of further spikes in the yield curve. The portfolio's exposure to floating corporate debt has also been increased to approximately 40% in anticipation of rising interest rates in the months ahead.

These portfolio actions have resulted in the yield and return outlook of Income Fund remaining above money market rates and we anticipate that more opportunities will present themselves over the medium term to secure this outcome for longer.