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PRUDENTIAL HIGH YIELD BOND FUND
30 SEPTEMBER 2016
QUARTERLY COMMENTARY
INCOME FUND
PERFORMANCE
In China, Q2 GDP growth held steady at 6.7% (q/q annualised),
The Fund returned 3.5% (net of fees) for the third quarter of 2016,
outperforming its benchmark, the BEASSA Total Return All Bond Index,
which returned 3.4%. Over 12 months the Fund has returned 7.1%.
slightly above consensus and within the government’s 6.5%-7.0%
RISK/RETURN PROFILE:
at record lows and reduced bank reserve requirements to buoy the
economy, although consumer spending has been somewhat softer.
Inflation-linked bonds (JSE CILI) underperformed for the quarter with
a 0.5% total return, while cash (STeFI Composite) returned 1.9%.
Other emerging markets continued to be supported by the improvement
RETURN
target for the year. The Chinese central bank has kept interest rates
HIGH YIELD
BOND FUND
in investor risk appetite. Five-year credit default swap spreads (a measure
In our SA bond funds we have moved to neutral duration from long,
taking profits as longer-dated paper rallied. Within this, we are also
overweight longer-dated bonds versus shorter paper while retaining
our overweight exposure to corporate bonds.
of sovereign default risk) trended lower across most emerging markets.
LOW
EM bonds and currencies were also generally stronger.
climbing after OPEC’s surprise agreement to limit production. Gold
lost 0.5% as its safe-haven status lost its appeal, but among notable
commodity price gains, tin and lead each rose 18% and palladium
jumped nearly 23%.
In South Africa, Q2 GDP growth came in at 3.3% (q/q annualised),
avoiding a technical recession (defined as two consecutive quarters
MARKET OVERVIEW
of negative growth) and the SA Reserve Bank revised upward its
In the US, weaker-than-expected GDP growth of 1.2% (q/q annualised)
in Q2 was offset by strong employment data showing a firmer
labour market and a pick-up in wages, as well as an acceleration in
consumer inflation to 1.1% y/y in August. The US Federal Reserve
left interest rates on hold at its September policy meeting, while
signalling an increasing likelihood of a rate hike in December. The
US central bank also scaled back its projections for future hikes. The
interest rate market pushed up the chances of a December rate hike
to 60%, while still expecting a total rate increase of 50 basis points
(bps) over the next 2.5 years.
HIGH
RISK
The price of Brent crude oil was $50 per barrel at quarter end,
With South Africa’s interest rate and inflation outlooks improving, risks
to bonds and listed property have moderated somewhat, although
the possibility of a credit rating downgrade is still a real threat to both
sectors. While SA bond spreads have continued to narrow versus US
Treasuries, yields are still pricing in an elevated risk premium.
MED
growth forecasts. August CPI fell to a lower-than-expected 5.9% y/y
from 6.0% y/y in July, and the SARB revised downward its inflation
forecasts for 2016 and 2017, while leaving interest rates unchanged
at its September meeting. The SARB Governor signalled that the rate
hiking cycle may be nearing an end, although any rate cuts would
FUND MANAGERS:
David Knee and Gareth Bern
ASISA CATEGORY:
South African - Interest Bearing - Variable Term
BENCHMARK:
BEASSA Total Return All Bond Index
INCEPTION DATE:
27 October 2000
FUND SIZE:
R508 820 744
face a high bar.
PRUDENTIAL HIGH YIELD BOND FUND
The rand strengthened against the US dollar and other major currencies
amid good global investor demand as well as significant inflows from
30 SEPTEMBER 2016
the conclusion of AB InBev’s purchase of SABMiller. Also supporting
the currency was a significant narrowing of the current account deficit,
In the Eurozone, Q2 GDP growth halved to only 0.3% q/q from
0.6% q/q the previous quarter, although on an annualised basis this
to 3.1% of GDP in Q2 from 5.3% in Q1.
represented
of 1.6% versus 1.7% previously.
The French andDOCUMENT
FACTgrowth
SHEET/MINIMUM
DISCLOSURE
Local bonds were helped by the improving local interest rate and
Italian economies reported near-zero expansion (with the weakness
inflation outlooks, rising commodity prices and offshore investor
of Italian banks gaining news headlines early in the quarter), while
demand. National Treasury saw excellent investor demand for its issue
Germany
remained the
main growth engine.
Consumer inflation
stayed
SINCE INCEPTION
CUMULATIVE
PERFORMANCE,
DISTRIBUTIONS
REINVESTED (A CLASS)
of US$3.0 billion in US dollar bonds which cleared at low premiums
very low at 0.2% y/y in August, while the ECB left its aggressive easing
programme
unchanged at its September policy meeting. The German
R500
10-year bund yield remained
negative
at -12bps,
Prudential
High Yield
Bond and
Fundfor the first time
R450
Benchmark
two highly rated, large
European companies issued corporate bonds
paying negative
R400 yields (investors will have to pay a small amount to
the company for the privilege of lending them money). Brexit worries
R350
eased somewhat amid better-than-expected economic data from the
R300recovery in British markets.
UK and some
to USTs versus previous issues.
In August R250
the Japanese government announced Y28 trillion fiscal
stimulus package,
including cash handouts to 22 million low-income
R200
earners. The country’s GDP growth nearly stalled in Q2 at only 0.2%
R150
(q/q annualised) on the back of declining exports and business
investment,
from 2.0% in Q1.
R100
over the quarter, and a supportive global environment, material risks
HIGH YIELD
BOND FUND
below guidance levels for many issues.
Despite improving outlooks for local inflation, interest rates and growth
LOW
MED
HIGH
RISK
remain for a possible credit rating downgrade, including the currently
elevated political risk around the Finance Minister. Moody’s will be
announcing its decision on 25 November, S&P on 2 December and
A CLASS
7.1%
5.9%
7.5%
8.5%
8.3%
10.4%
BENCHMARK
7.6%
6.8%
8.0%
8.7%
8.5%
10.6%
2016
2015
2014
2013
2012
2011
2010
2009
Fitch also in early December.
2008
2007
2006
2005
2004
2003
2002
2001
2000
seen for short-term, high-quality issues. Auction pricing (yields) cleared
RETURN
services companies raised debt during the quarter, with strong demand
R100 Initial Investment
RISK/RETURN PROFILE:
R498.48
In the primary bond market, several property companies and
financial
R483.13
ANNUALISED PERFORMANCE
1 year
3 years
5 years
7 years
10 years
Since inception
#
INCOME
B CLASS
7.5%
6.3%
7.9%
8.8%
8.6%
9.3%
Inception date B Class: 1 April 2003
To maximise income while securing steady
capital growth. This is achieved by investing in
0860
105of775
a diversified
portfolio
high-yield bonds in the
South African market.
INVESTOR
PROFILE:
prudential.co.za
Individuals that require a high level of income
from their capital investment with relatively low
risk. [email protected]
recommended investment horizon
is 1-3 years, or longer when used as strategic
exposure to the asset class.
Application forms
DISCLAIMER
Prudential Portfolio Managers Unit Trusts Ltd (Registration number: 1999/0524/06) is an approved CISCA management company (#29). Assets are managed by Prudential Investment
Managers (South Africa) (Pty) Ltd, which is an approved discretionary Financial Services Provider (#45199). The Trustee’s/Custodian details are: Standard Bank of South Africa Limited
th
Bank Centre, Heerengracht, Cape Town. Collective Investment Schemes (unit trusts) are generally medium-to
- Trustee Services & Investor Services. 20
A CLASS
DATE
RETURNS SINCE INCEPTION## Floor, Main Tower, Standard
long-term investments. Past performance is not necessarily a guide to future investment performance. Unit trust prices are calculated on a net asset value basis. This means the price is
29.6%
31 Oct
2001
Highest
the
total netannualised
market value return
of all assets of the unit trust fund divided
by the total number
of units
of the fund. Any market movements – for example in share prices, bond prices, money
market
prices
or currency return
fluctuations - relevant to the underlying -6.5%
assets of the fund
the value of the underlying assets to go up or down. As a result, the price of your units
31may
Jancause
2016
Lowest
annualised
may
go
up
or
down.
Unit
trusts
are
traded
at
the
ruling
forward
price
of
the
day,
meaning
that
transactions are processed during the day before you or the Manager know what the
##
12-month rolling performance figure
price at the end of the day will be. The price and therefore the number of units involved in the transaction are only known on the following day. The unit trust fund may borrow up to
10% of the fund value, and it may also lend any scrip (proof of ownership of an investment instrument) that it holds to earn additional income. A Prudential unit trust fund may consist
of
different
fund classes that are subject to different fees and charges.
Where applicable,
the Manager will pay your financial adviser an agreed standard ongoing adviser fee, which is
RISK
MEASURES
A CLASS
BENCHMARK
included
in the
overall costs
of the fund. A Collective Investment Schemes
with all fees and maximum initial and ongoing adviser fees is available on our website. One
7.3% (CIS) summary
7.3%
Monthly
volatility
(annualised)
can also obtain additional information on Prudential products on the Prudential website. The Manager may, at its discretion, close your chosen unit trust fund to new investors and to
-9.8%
Maximum
drawdown
overinvestors
any period
additional
investments
by existing
to make sure that it is -10.7%
managed in accordance
with its mandate. It may also stop your existing debit order investment. The Manager makes no
guarantees
as to the
capital 12
invested
in the fund or the returns of the
fund. Excessive withdrawals
93.9%
93.9% from the fund may place the fund under liquidity pressure and, in certain circumstances;
% of positive
rolling
months
aInformation
process of ring ratio
fencing withdrawal instructions may be followed. -1.1
The Fund is an interest
n/abearing fund. A current annualised yield is used. This means the portion of the return of the
Fund that is attributed to income generated over the last 12 months, assuming the investor reinvests all distributions and incurs no transaction fees or taxes. Fund prices are published
-0.1
Sortino
daily
on theratio
Prudential website. These are also available upon request.
The performance is0.1
calculated for the portfolio. Individual investor performance may differ as a result of initial fees,
-0.1
0.0 and repurchase requests must be received by the Manager by 13h30 SA time each business
Sharpe
the
actual ratio
investment date, the date of reinvestment and dividend withholding
tax. Purchase
day. All online purchase and repurchase transactions must be received by the Manager by 10h30 (for all Funds) SA time each business day.
TOP ISSUERS*
1.
Republic
South Africa
61.8%
Page
1 of 1 ofPrudential
High Yield Bond Fund Q3 2016 commentary
2. Prudential Corporate Bond Fund
19.8%
3. Eskom Holdings Ltd
6.8%
FUND OBJECTIVE:
HOW
TO INVEST
ASSET ALLOCATION
SA Bonds (ex. Inflation-linked Bonds)
95.9%
Sources: Prudential, Morningstar & Deutsche Securities
SA Cash
4.1%
INVESTMENT MANDATE:
The Fund invests in a combination of
government, semi-government and corporate
Invest now
bonds, and other interest-bearing securities.
No duration constraints apply. The Fund is
managed to comply with regulations governing
retirement fund investments (Regulation 28).
Application forms and all required
FUND MANAGERS:
documentation must be faxed to
David Knee and Gareth Bern
+27 11 263 6143 or e-mailed to
ASISA CATEGORY:
[email protected].
South African - Interest Bearing - Variable Term
BENCHMARK:
BEASSA Total Return All Bond Index
INCEPTION DATE: