BUSINESS NEWS - Money market accounts at South Africa’s major banks are currently paying interest at around 6.5%. That’s only 2% above the current rate of inflation.
This might be a fine place to park money for a very short period, but once you take into account the tax you pay on the interest earned, your savings are probably only barely maintaining their value in real terms. Inflation only has to rise slightly for the buying power of your money to start going down.
Five-year fixed deposits are currently earning around 8.1%. That’s not bad in the current environment, but your capital is completely tied up for that period. You have no liquidity if you need it.
Investors looking for alternatives to these products offered by banks can consider multi-asset income unit trusts. Not only have many of these funds shown the ability to deliver returns consistently higher than bank deposits over a number of years, they also offer access to your money within a matter of days.
As the table below shows, the top funds in this category over the last year have all delivered growth of more than 9%.
| SA multi-asset income fund performance to June 30, 2018 | |
| Fund | 1 year annualised return |
| Sasfin BCI Flexible Income Fund A | 11.41% |
| Tower Capital Core Income Prescient Fund A1 | 10.91% |
| Fairtree Flexible Income Plus Fund A1 | 10.55% |
| BCI Income Plus Fund A | 10.52% |
| Pan African IP Income Hunter Fund | 9.88% |
| MI-PLAN IP Enhanced Income Fund A1 | 9.36% |
| Sharenet BCI Income Plus Fund A | 9.29% |
| Momentum Income Plus Fund A | 9.26% |
| Investec Diversified Income Fund A | 9.25% |
| Momentum SA Flexible Fixed Interest Fund A | 9.15% |
| STeFI Composite | 7.33% |
| CPI | 4.38% |
Source: Morningstar
The benefit of multi-asset income funds is that, depending on their mandate, they can invest not only in fixed deposits and the money market, but also bonds, preference shares, listed property (up to 25%), and even dividend-paying stocks (up to 10%). They can also diversify offshore. They therefore have more options when it comes to generating returns.
This does mean that they carry slightly more risk, but the majority of them have a strong focus on preserving capital. Over the last 48 months, for instance, the Fairtree Flexible Income Plus Prescient Fund has only shown a negative monthly return on three occasions. The largest of those declines was -0.38%.
Investors looking at funds in this category should however be aware that funds can go about things very differently. For example, the Sasfin BCI Flexible Income Fund has the STeFI Composite (money market index) as its benchmark. The Fairtree Flexible Income Plus Prescient Fund however targets STeFI + 3%, and the BCI Income Plus Fund targets STeFI + 2%.
