Finweek_English_Edition_-_March_19,_2020__

1 year Since inception in March 2013

FUND IN FOCUS: TRUFFLE SCI FLEXIBLE INCOME FUND By Timothy Rangongo

market

place

1 Absa Preference Shares 8.51%

2 Investec Preference Shares 7.65%

3 Discovery Holdings Preference Shares 5.38%

4 Standard Bank Preference Shares 5.26%

5 PSG Group Preference Shares 4.13%

6 FirstRand Preference Shares 3.93%

7 Grindrod Preference Shares 3.82%

8 Liberty Group F/R 28022023 3.14%

9 FirstRand Bank Bond 03062024 2.85%

10 Nedbank Preference Shares 2.76%

TOTAL 47.43%

TOP 10 HOLDINGS AS AT 31 DECEMBER 2019:

PERFORMANCE (ANNUALISED AFTER FEES)

16

14

12

10

8

6

4

2

0

12.73%

4.78%

8.8%

4.8%

Exposure to income-generating assets

The fund aims to hedge out the market risk of underlying investments or hold investments that are secure and don’t

expose the portfolio to market fluctuations.

Benchmark: 70% of 3-month STeFI Index

Fund manager: Louis van der Merwe, Hannes van der Westhuyzen

and Palvi Kala

Fund classification: South African – Multi Asset – Flexible

Total investment charge: 1.23%

Fund size: R172.8m

Minimum lump sum/subsequent

investment:

R10 000/R

Contact details: 011 325 0030/[email protected]

FUND INFORMATION AS AT 31 JANUARY 2020:

As at 31 January 2020:

■ Truffle SCI Flexible Income Fund ■ Benchmark

Fund manager insights:

Relying on a fundamental valuation-based investment philosophy, Truffle Asset

Management’s flexible income portfolio currently mainly invests in preference

shares and floating-rate notes. Investments are, however, limited to cash, listed

government and corporate bonds, listed shares, listed preference shares, listed

convertible equities, listed and unlisted derivatives, both within and outside

South Africa.

The fund diversifies across all listed preference shares, says fund manager

Louis van der Merwe. According to the JSE,

preference shares have some of the characteristics

of debt and equity – they behave like shares in that

their prices can climb over time as they are traded

but they are similar to debt because they pay

investors fixed interest in the form of dividends.

Van der Merwe tells finweek that a preference

share’s dividend, such as those of Discovery (which

constitutes 5.38% of the fund’s holdings), is linked

to a percentage of the prime interest rate and not

directly linked to the profitability of the company

(unless in the case of the company not being able

to pay the dividend). “As a result, the decision whether to hold the share or not is

more a function of the credit risk of the issuer,” he says.

The income fund is currently invested in both listed perpetual preference shares

and corporate bonds; roughly 50% in each asset class. Absa’s preference shares

are the fund’s largest holding, mainly due to the stock having “a running dividend

yield of close to prime, which is relatively attractive in the current market. They are

also reasonably liquid and have acceptable credit risk,” says Van der Merwe.

Although the emergence of the coronavirus remains a considerable risk to

growth momentum across global markets, Van der Merwe says that none of the

fund’s holdings are directly exposed to the Chinese market; and because the

fund invests in listed preference shares and corporate bonds, the risk is more

of a credit nature than a profitability nature. He does, however, caution that a

preference share’s dividend could still be halted due to the company not being

able to pay a dividend.

Why finweek would consider adding it:

The fund has a monthly income distribution, meaning that shareholders can elect to

be paid directly, which puts cash in their pockets, or elect to buy more shares of the

fund by reinvesting dividends. The fund outperformed its benchmark substantially

over a one- and three-year period and since inception seven years ago. ■

[email protected]

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14 finweek 19 March 2020 http://www.fin24.com/finweek

The income fund is currently

invested in both listed

perpetual preference shares

and corporate bonds; roughly

50%

in each asset class.