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Whether your goal is to diversify your investments, save for the future, receive dependable income or preserve capital, fixed income investments are one way to achieve it. We spoke to the fund managers at Matrix and Terebinth about their Fixed Income funds and the value they feel this strategy adds to an investor’s portfolio.
Fixed income is a class of assets and securities that pays out a set level of cash flows to investors, typically in the form of fixed interest or dividends. At maturity, for many fixed income securities, investors are repaid the principal amount they invested plus the interest they received. Government and corporate bonds are the most common types of fixed-income products, but this strategy can also be in the form of a hedge fund or long-only fund. They are commonly used in some traditional investments to manage risk.
Matrix Fund Managers have been managing hedge funds and traditional long only portfolios since 2006. They have three fixed income offerings via its Matrix NCIS Fixed Income Retail Hedge Fund, the Matrix SCI Stable Income Fund and Matrix SCI Bond Fund (available on the Sanlam Collective Investment Manco). The team takes an agile approach to active investing with a core philosophy of focusing on liquid markets. “Liquidity risk is often undervalued and underappreciated. Unfortunately most of the SA credit market, typically higher yielding corporate, parastatal and subordinated bank debt, remains illiquid and does not always suit our approach,” says Eben Karsten, CEO at Matrix Fund Managers. Matrix’ long only fixed income funds typically compliment less liquid fixed income strategies, such as funds with high corporate credit exposure, within a total solution. “Our funds aim to produce competitive interest-bearing returns while providing liquidity to investors on short notice without significant market impact,” says Karsten.
Karsten believes that when it comes to their hedge funds, their focus on monetary policy and its effect on the forward market (swaps and FRAs) provides a differentiated, specialised and often uncorrelated source of return. “Our fixed income returns are mostly driven by the current and future shape of various liquid yield curves that include forward rates, money market curve, government nominal yield curve, government inflation linked yield curve and floating rates spreads, the latter with a focus on senior bank debt,” he says. The Matrix NCIS Fixed Income Retail Hedge Fund has managed to well outperform its cash +8% objective over the last 10 years. Karsten believes that their sustainable hedge fund alpha is achieved by a combination of a mandate advantage, a skills advantage and an operational infrastructure advantage. “We believe that our specialist expertise and interest rate derivative infrastructure advantage create a range of relative value and directional trade opportunities across various yield curves – especially in the forward market.”
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Terebinth Capital specialises in Fixed Income and Enhanced Income strategies and currently offers eight fixed income mandates. The company follows an active asset allocation, best-investment-view, macro-orientated approach. Their philosophy is premised on the concept that fixed income markets are primarily impacted by core macro-economic variables over the medium to long term, but that fixed income requires a deep understanding of first principle pricing. “We devote equal measures of resources to this approach, leading to robust outcomes,” says CIO, Erik Nel. “Our macro portfolio construction has capital preservation, down-side protection and risk management at its core. This broad macro process and experience allows us to consistently outperform the market through various business cycles. We have an absolute return mindset, so can afford to be agnostic to the business cycle and directionality of the markets, by expressing alpha-generating strategies in both bull and bear phases of the benchmarks that we are mandated to.”
Nel and his team view alpha as the excess return that results from portfolio management skill and off-benchmark portfolio construction, without having to rely solely on credit spreads. “We value skills-based alpha because its true value-add, if proven over the long-term, is repeatable. Our consistent macro investment process has stood the test of time and has been a reliable producer of consistent skills-based alpha for our clients from a variety of uncorrelated areas of expertise.,” says Nel.
Terebinth is not obsessed with benchmarks or peer groups but focuses solely on investing clients’ money. It outsources all non-core functions to best of breed providers, while focusing on balance sheet risk mitigation and making TCF part of its employment and remuneration process.
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