Views Article – Sharenet Wealth

South Africa

Income Funds: A Safe Haven in Stormy Markets?

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2018 was a year most investors would like to forget and there were few places to hide. Not only did global markets chew into investors’ capital, but also took a rollercoaster-like path before ending the year in the red. Market volatility made a sudden appearance, catching many by surprise, and carried with it extreme price movements only few in the market have had the displeasure of witnessing before. Between Donald Trump and his tweets; Chinese trade tensions and the Brexit saga in Britain, it almost felt like they were taking turns battering the market.

South African investors have been under-compensated over the last four years for the risk taken in the equity market. Returns have struggled to match even inflation over this period.  

In 2018, SA equity (JSE All Share index) delivered a disappointing -8.5%, while the SA Listed Property index crashed (-25.3%). The property sector took pain at the start of the year with rumours about the Resilient group and never recovered. There is great concern about the accounting methods employed by companies in this sector and it is going to take some time for investor confidence to return.

South Africa is no stranger to seeing weak market performance due to politics, and during these periods have the option to move capital offshore to improve performance. This was not the case in 2018. Global markets (MSCI World Equity Index) declined by -8.2% in 2018, with the UK FTSE index -14.1% and Emerging Markets -14.3% among the worst performers.

The star among the asset classes was income investments where the SA All Bond index delivered +7.7% for the year, marginally better than cash (STeFI index) with +7.3%.

Investors are increasingly pessimistic of an economic recovery any time soon and seek a safe haven to weather these stormy markets. A solution for investors could be to invest in income funds. An example, is the Sharenet BCI Income Plus Fund (unit trust) that delivered +9.54% for the year, a real return of inflation plus 4%! Remarkably, the return was generated in a period of extreme market volatility and a changing interest rate environment, a testament to the fund’s sound strategy. The fund achieves this by investing in quality fixed interest instruments with a short duration and a focus on floating rate investments.

There are still big question marks hanging over global markets including a possible no-deal Brexit. The world is also waiting with bated breath to see if the US (Trump) and China will be able to strike a sustainable trade agreement. While these and other issues persist, there are rising concerns that we might be standing on the cusp of a global economic recession. Income fund unit trusts like the Sharenet BCI Income Plus Fund can potentially offer investors a safe haven with good compensation. These funds are liquid, allowing investors to remain nimble and not be locked into an investment. An income fund could be the perfect place to park cash and watch turbulent markets from the side-line until the risk-reward proposition in growth assets like equity and property or even balanced funds looks attractive again.

The below chart shows that most income funds (as measured by the ASISA – SA Multi Asset Income sector) are struggling to outperform the return of cash (STeFI) while Sharenet’s fund trumps the comparison in all periods under review.


Data as at 31 December 2018 | Source: Morningstar

The below risk/return chart gives an indication of the Sharenet BCI Income Plus Fund’s ability to outperform the competition with the added benefit of more stability in returns. (the aim here is to be top-left, higher return with lower risk)

Risk (volatility) vs Return


Data for the period 31 Dec 2015 – 31 Dec 2018 | Source: Morningstar | Income funds from ASISA SA MA Income sector

The fund is well positioned for these uncertain times. We focus on good quality short term fixed income investments with attractive returns that are linked to JIBAR for increased stability.

Readers are welcome to contact us for more information on the Sharenet BCI Income Fund or any other investment-related questions. Fill in the form below or reach us on 021 700 4800 or email

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Kobus Louw
Chief Investment Officer
Sharenet Investments

Kobus Louw is acknowledged as one of the leaders in the field of fixed income and investment derivatives in the market. He was Head of Portfolio Management at Sanlam, CIO at Cadiz Asset Management and is currently the CIO at Sharenet.


Boutique Collective Investments (RF) (Pty) Ltd (“BCI”) is a registered Manager of the Boutique Collective Investments Scheme, approved in terms of the Collective Investments Schemes Control Act, No 45 of 2002 and is a full member of ASISA. Collective Investment Schemes in securities are generally medium to long term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. BCI does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request. BCI reserves the right to close the portfolio to new investors and reopen certain portfolios from time to time in order to manage them more efficiently. Additional information, including application forms, annual or quarterly reports can be obtained from BCI, free of charge. Performance figures quoted for the portfolio are from Morningstar/Profile Data, as at the date of this minimum disclosure document for a lump sum investment, using NAV-NAV with income reinvested and do not take any upfront manager’s charge into account. Income distributions are declared on the ex-dividend date. Actual investment performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax. BCI retains full legal responsibility for the third party named portfolio. Although reasonable steps have been taken to ensure the validity and accuracy of the information in this document, BCI does not accept any responsibility for any claim, damages, loss or expense, however it arises, out of or relating to the information in this document, whether by a client, investor or intermediary. This document should not be seen as an offear to purchase any specific product and is not to be construed as advice or guidance in any form whatsoever. Investors are encouraged to obtain independent professional investment and taxation advice before investing with or in any of BCI’s products. A fund of funds is a portfolio that invests in portfolios of collective investment schemes that levy their own charges, which could result in a higher fee structure. Income funds derive their income from interest-bearing instruments in accordance with Section 100(2) of the Act. The yield is a current yield and is calculated daily.

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