Investment Focus: M&G Namibian Money Market Fund

With a track record of consistent returns, the M&G Namibian Money Market Fund aims to offer investors capital preservation and stability, while capturing the current relatively high interest rates on offer. The Fund can be considered ideal for investors seeking to increase their cash exposure, or looking for a highly liquid, low-risk fund for cash management purposes or in which to park investments during bouts of market volatility. It focuses on short-term, high-yielding and high-quality money market instruments in order to meet its fund objective of achieving a high level of current income, while preserving capital and liquidity.

The M&G fund was awarded "Best Cash Asset Manager" at the prestigious Namibia Top Company Awards 2023, a testament to the team’s commitment to excellence, and its reliability as a solid solution for both institutional and retail investors needing a low-risk parking bay for their cash.

A year of high interest rates and income returns

Namibian bonds broadly outperformed their SA peers throughout 2023, escaping much of the elevated risk associated with South Africa, and recording very strong gains thanks to improving government deficit projections and lower bond issuance. Yield spreads versus SA bonds narrowed (some even moving into negative territory). Namibia’s IJG All Bond Index delivered 6.7% over Q4, while the IJG Money Market Index returned 2.1%. More recently, the IJG Call Index (including NCD’s) delivered 6.8% over 12 months, putting it attractively above Namibian CPI inflation, which increased to 5.4% y/y in January from 5.3% y/y in December – within the 3%-6% target band.

In terms of performance, the fund returned 0.6% (after fees) for the month of February and 8.5% (after fees) over the past 12 months (for the period ending 29 February 2024), outperforming its benchmark, the IJG Call Index*. While the Fund is short-term focused, the most recent three- and five-year outperformance of 1.2% and 1%, respectively, is also worth noting. Relative to the 90-day maximum average duration, the fund is currently running an effective duration of 49 days.

From a positioning perspective, the Fund has a large holding in floating-rate instruments (around 80% of the fund). These instruments are benefiting from the interest rate differentials between the South African Reserve Bank (SARB) and the Bank of Namibia (BON) repo rates, at 8.25% and 7.75% respectively. Seeing as these instruments’ yields have been increasing --influenced by the hikes in both countries’ repo rates and higher interbank rates, these securities have delivered attractive yields relative to fixed-rate alternatives.

Most recently, top issuers in the fund included the Namibian government and the big banks in both countries such as Bank Windhoek Ltd, Nedbank Namibia, First National Bank Namibia and Standard Bank Namibia.

In conclusion, the M&G Namibian Money Market Fund presents a compelling opportunity for investors looking to preserve their capital in the short term. With a strong track record of short- and medium-term performance, this fund remains a reliable investment option.