The largest investment in the fund, the Sanlam Alternative Income Fund, returned higher after-tax returns due to two interest rate increases, which resulted in a positive effect on fund returns for the period.

The Bond Index, Preference Share Index and Property Index performed positively during the quarter, supporting the underlying income funds. Low GDP growth, rating fears and CPI breaching the upper band of the South African Reserve Bank’s inflation brackets will continue to put pressure on the fixed income market in the short term.

To keep with the fund’s focus on enhancing after-tax returns for investors, we diversified the underlying holdings by investing in a new income fund during the quarter. In addition, we reduced exposure in the Sanlam Alternative Income Fund from 75% of the fund’s holding to a targeted holding of 60% during March. The fund had improved positive returns over the quarter, above its benchmark. We will continue to take advantage of opportunities as they arise, while maintaining the fund’s conservative profile.

Although lower than the previous quarter’s returns, we were satisfied with the fund’s performance given the difficult market conditions. The largest investment of the fund, the Sanlam Alternative Income Fund, returned higher after-tax returns, due to the increase in the repo rate and the fund investing R950 million in new dividend yielding assets. The South African fixed income market experienced extreme volatility during the quarter and remained under considerable pressure. The bond index, preference share index and property index performed negatively during the quarter, while the Rand depreciated by more than 18%. The fund was defensively positioned which provided protection against the adverse market movements. Despite the increased negative macro-economic news and large fluctuations in the fixed income market, the fund continued to have a low volatility of 0.20%. Taking into account the potential fixed income market volatility and the fund’s focus on producing consistent positive returns, we will continue to position the fund conservatively while retaining the ability and flexibility to exploit opportunities as they arise.