Personal Finance acting editor Laura du Preez presents a Raging Bull Award to Ian Scott, fixed income portfolio manager at Stanlib, and Victor Mphaphuli, manager of the Stanlib Bond Fund.


Raging Bull Award for the Best Domestic Fixed-interest Fund – the top-performing fund on straight performance in the domestic fixed-interest bond and income sub-categories over three years to December 31, 2012

Last year was a phenomenal one for bond market investors, and the bond fund with the top return for the year, 16.86 percent, was also the leading fund on three-year performance and the winner of the Raging Bull Award for the Best Domestic Fixed-interest Fund.

The Stanlib Bond Fund returned 14.48 percent a year over the three years to the end of December, according to ProfileData. The benchmark for domestic bond funds, the BEASSA All Bond Index, returned 13.21 percent a year over the same period.

The Stanlib Bond Fund’s return was also higher than that of funds in the fixed-interest income sub-category; the best-performing fund in the income sub-category, the Old Mutual Income Fund, returned 8.59 percent a year over the three-year period.

This is the fifth time the Stanlib fund has won a Raging Bull Award. It won previously as the top fixed-interest fund for its performance in each of the four years to 2006.

Stanlib Bond Fund manager Victor Mphaphuli says last year’s phenomenal bond returns were driven largely by demand for South African bonds from foreign investors seeking higher returns than those offered by their own bond markets where central banks have kept interest rates low to stimulate the economy.

In addition, he says that last year South Africa was included in the Citigroup World Government Bond Index, and this increased the allure of local bonds for foreign investors.

At the beginning of the three-year period to the end of December, Stanlib’s Bond Fund was more exposed to bonds in the middle sector of the yield curve (bonds with medium terms to maturity), avoiding those with longer terms to maturity, because it was worried about the negative effects of government increasing the supply of these bonds to fund the budget deficit, Mphaphuli says.

The yield of a bond is the interest it pays as a percentage of the current price of the bond, and the yield curve shows the yields of bonds according to their periods to maturity.

Towards the end of last year, Stanlib switched its medium-dated bonds for those with longer terms to maturity, because they were looking cheaper. Local and foreign investors seeking better yields started to increase their interest in longer-dated South African bonds, Mphaphuli says.

In addition, over the past three years the fund has been overweight on South African corporate bonds relative to its benchmark, the BEASSA All Bond Index. These positions benefited the fund in comparison to the benchmark and its peers. Many corporate bonds were extremely cheap after the credit crisis, Mphaphuli says. However, their prices have risen and the yields have compressed as investors around the world have sought out corporate bonds in an attempt to earn a higher yield than they can in their own markets.

The Stanlib Bond Fund’s exposure to corporate bonds has been almost double that of the SA Bond Index, Mphaphuli says, and the fund still remains heavily invested in the bonds of banks, parastatals and property companies.

The fund has an exposure of 44.2 percent to corporate bonds, according the fund’s December fact sheet.

Stanlib is of the view that the corporate credit market will continue to be supported by foreign investors from many countries where central banks are likely to keep interest rates low to support economic growth, Mphaphuli says.

Over the past three years, Stanlib has added a number of inflation-linked bonds to the fund’s portfolio. At the end of December, the fund had 7.1 percent invested in inflation-linked bonds, which paid off well, given that these instruments returned over 19 percent during the past year.

Mphaphuli says there has been a huge demand for these bonds which has benefited the fund.

Looking ahead, Mphaphuli says he does not expect a repeat of the phenomenal returns of 2012, although he is not bearish about the prospects for bonds, because most of the unconventional monetary stimulus will be around for some time, as growth remains tepid in most economies, including South Africa’s.

He expects the bond market to move sideways as the positive and negative influences on the bond market balance out.