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Achieve Maximum Returns with Minimal Risk: Put Your Cash Investments to Work

Achieve Maximum Returns with Minimal Risk: Put Your Cash Investments to Work

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In recent years, cash, often considered a passive asset class, has undergone a remarkable resurgence, establishing itself as a formidable contender in the investment landscape. Cash mitigates risk by serving as a safety net within a diversified portfolio and affords strategic opportunities during favourable market conditions. Presently, with inflation on the rise, higher interest rates, load shedding, and market volatility, it is increasingly prudent to hold cash in one's portfolio.

As these challenging times persist, companies are also retaining more cash on their balance sheets and exercising caution regarding investments. It is therefore imperative for companies and investors to optimise their cash investments to ensure maximum returns.

• The Resurgence of Cash as an Asset Class

In 2022, cash outperformed both South African nominal and inflation-linked bonds by 66 basis points and surpassed South African equities by an impressive 134 basis points. Notably, these returns were achieved while providing clients with invaluable downside protection. This resurgence of cash highlights its enduring value and reliability. Amidst uncertainty, cash has demonstrated its capacity to generate respectable returns while mitigating risks and offering downside protection. 

Figures 1 and 2 illustrate the outperformance of cash against South African bonds and equities in 2022 and year-to-date.  Moreover, it depicts that investors were not compensated for the risks undertaken through investments in the All Bond Index. In contrast, investments in the Nedgroup Investments Core Income Fund would have yielded marginally lower returns with substantially reduced risk.

Figure 1: Asset Class returns

Figure 2:  Higher returns on a risk-adjusted basis

Benefits of Putting Your Cash Investments to Work

The Nedgroup Investments Core Income Fund presents a safe avenue for attaining attractive yields without incurring excessive risk. The Fund aims to outperform bank deposits and offers investors the potential for superior returns while maintaining flexibility and high liquidity.

The Fund is strategically positioned to capitalise on interest rate hikes, with a significant portion of the Fund invested in Floating Rate Notes (FRNs). FRNs are interest-bearing instruments renowned for their adaptability to fluctuating interest rates, making them an invaluable asset in an environment characterized by high inflation and rising interest rates.

• Superior Risk-Adjusted Returns Compared to Traditional Money Market Funds

The Nedgroup Investments Core Income Fund sets itself apart by consistently outperforming its benchmark, the STeFI Composite Index, and delivering competitive risk-adjusted returns. It surpassed South African Nominal Bonds (ALBI) over the past year, showcasing the Fund’s ability to generate superior returns over both short and long terms, as depicted in Figure 3.

Figure 3: Period returns

• Liquidity and Capital Preservation

Rated Global AA, the Nedgroup Investments Core Fund ensures that the underlying instruments are of high credit quality, further diminishing investors’ risk. Importantly, the Fund primarily invests in short-duration debt instruments issued by major South African banks, which minimises default risk and preserves capital. 

The Fund has effectively safeguarded capital during turbulent periods. For instance, during the COVID-19 outbreak, the ALBI returned -9.8% in March 2020 and -6.3% in April 2020, while the Fund preserved investors' capital.

• Consistent and Reliable Income

The Nedgroup Investments Core Income Fund’s conservative investment approach guarantees a steady income stream, catering to investors seeking stable returns. Understanding that investors may not have the luxury of waiting for market turnarounds in uncertain conditions, the Fund is committed to delivering consistent performance.

Figure 5 showcases the growth of a R10,000 investment made in July 2013 in the Nedgroup Investments Core Income Fund, SA Cash, and SA Nominal Bonds. The Nedgroup Investments Core Income Fund would have yielded R19,777, while SA Cash would have grown to a low R17,480, and SA Nominal Bonds would have amounted to R21,005 at the end of July 2023. This illustrates the smooth, reliable return profile without the volatility associated with South African nominal bonds.

Figure 5:  Investment growth