Manager Research

Sanlam Investment Management (SIM) recently issued a ballot to investors seeking to change the investment policy of the SIM Active Income fund to invest in only South African assets. This is a change from the current investment policy which allows the fund to invest up to 30% in foreign assets. While on the face of it this appears to be a material change, the fund has always been managed as an SA-only mandate, despite the allowance in the investment policy to include foreign assets. There is therefore no change to the portfolio construction process or opportunity set for the fund.

Investors have until the 28^th of October to vote on the ballot and, if it passes, the changes will be implemented towards the end of the year. The fund’s name will change to Sanlam Investment Management (SIM) SA Active Income Fund to reflect the new fund structure.

Why are they making this change?

SIM have been quite clear over the past couple of years that they would like to include foreign assets in the Active Income Fund portfolio. They found themselves unable to make this change to the fund due to existing clients specifically using the fund because it did not hold offshore exposure. SIM have therefore decided to launch a new multi-asset income fund which will have the ability to hold offshore exposure. Asset managers are not allowed to run two funds with the exact same mandate so SIM have been forced to go through this balloting process to specify that the existing fund will be SA-only.

Why include offshore exposure?

The introduction of offshore exposure within a multi-asset income fund increases the asset class opportunity set available to the fund for investment. This results in improved portfolio flexibility, liquidity, and the ability to better-balance risks via the additional diversification that offshore currency provides. This is the reason why most funds in the multi-asset income sector make allocations to offshore assets. The introduction of offshore exposure should therefore result in better risk-adjusted returns for a fund which includes offshore relative to a fund which is restricted to only local assets.

Once the ballot is approved, SIM can then launch the new Active Income Fund with offshore.  We do not have material concerns with the fund changes and would be supportive of the ballot. The fund will also retain the current Tier 2 rating.