The Marriott Core Income Fund's objective is to provide a high and reliable income stream to investors through the interest rate cycles. By consistently applying our income focused investment style, the Fund has a proven track record of delivering on its mandate and is ideal for moderately conservative investors with a 24-month time horizon.
Core Income Fund investors can expect:
1. A high and reliable level of income
2. Consistent inflation-beating returns
3. Downside capital protection
The Core Income Fund has consistently delivered a higher level of income than the average of both the Interest Bearing – Money Market and the Multi-Asset Income Sectors, as indicated.
This high and reliable level of income is useful for retirees wanting to draw an income stream from their annuity, or for moderately conservative investors wanting to accumulate capital (through income reinvestment) in a more predictable manner.
|Core Income Fund – Income Produced on R1,000,000 invested (as at 30 Sep 2020)|
|Fund/Sector Average||1 year||3 years||5 years||10 years|
|Core Income Fund Class A||R72 122||R242 005||R398 044||R749 645|
|Core Income Fund Class C (LISPs)*||R74 968||R250 810||R412 121||n/a*|
|SA Multi-Asset – Income Sector||R62 184||R201 399||R339 924||R607 520|
|SA Interest Bearing – Money Market Sector||R61 448||R201 490||R336 673||R606 770|
Source: Profile Data
The economic uncertainty stemming from the Coronavirus has resulted in extreme levels of market volatility across all asset classes. Although not immune to the sell-off, the Core Income Fund has fared well and has been a good place to be invested – consistently delivering inflation-beating returns for investors as indicated:
|Core Income Fund – Annualised Total Return (as at 30 Sep 2020)|
|Fund/CPI||1 year||3 years||5 years||10 years|
|Core Income Fund Class A||9.5%||9.2%||8.6%||7.4%|
|Core Income Fund Class C (LISPs)*||9.8%||9.6%||8.9%||n/a*|
|SA Multi-Asset – Income Sector||4.8%||6.6%||7.0%||6.9%|
|SA Interest Bearing – Money Market Sector||6.4%||6.8%||7.1%||6.4%|
Source: Profile Data
The Fund has a good track record of generating decent real returns over time with high levels of capital protection. The chart below shows the Fund’s 24-month rolling return since 2010, and highlights the downside capital protection. The lowest 24-month annual return was just below 5% p.a.
A primary benefit of the Core Income Fund is its flexible mandate. The Fund manages its exposure to cash, investment grade corporate debt, preference shares, property and bonds through the interest rate cycles to ensure it delivers a high and reliable income stream to investors. If a high level of income can be achieved with a conservative asset allocation, the Fund will have a higher weighting to cash. If, however, valuations are compelling and there is a significant advantage in having exposure to longer-dated income streams, the Fund will take meaningful positions and increase duration accordingly.
The below highlights 4 major opportunities where the Marriott Core Income Fund used its flexibility to take advantage of attractively priced income streams:
Note: Modified Duration is an indication of how much the fund’s price would move if yields changed by 1%. The current figure of 2.1 shows that if yields decreased by 1% the fund’s price would increase by 2.1%. The opposite is true if yields increased by 1% then the fund’s price would decrease by 2.1%.
As short term cash rates in South Africa are now the lowest they have been in 50 years, the short end of the yield curve has a poor outlook for returns going forward. Investors will be well served in the Core Income Fund as the Fund has maintained an approximate 40% exposure to government bonds which in our opinion represents the most attractive investment opportunity in South Africa from a risk/return perspective. The following points below explain why we think this:
The R186 (maturing in 2026) and R2030 (maturing in 2029), to which the Fund is exposed, are currently offering yields between 4% and 6% higher than cash rates. The table on the right highlights the expected gross annual returns of these two bonds over the next three years, assuming no change in yields and 'rolling down the yield curve'.
|Expected Returns assuming no change in yields|
|Government Bonds||R186 (6.2yr)||R2030 (9.3yr)|
Although South African government bonds are not without risk, they nevertheless remain one of the safest and most liquid investments available in the domestic market. Having said that, we remain concerned about the trajectory of government debt-to-GDP and expect a continued deterioration in the years ahead despite Tito Mboweni's best efforts to rein in government spending. With this in mind, we have limited our buying to medium term debt, favouring bonds maturing in 6.5 years (R186).
Over the last few years, investors were able to achieve reasonable returns from Money Market Funds without taking on volatility. However, given a 3% decline in interest rates since the beginning of the year and another cut potentially on the cards – the outlook for Money Market Funds has changed significantly.
The chart below shows the historic income yields of the Marriott Core Income Fund and the Marriott Money Market Fund over the last 10 years, highlighting the significant impact falling interest rates have had on money market yields since the beginning of the year.
The Marriott Core Income Fund is well-positioned to produce an average annual return of approximately 7% over the next 24 months – almost 3.5% more than money market rates and significantly higher than inflation.
Although we are of the view that South Africa’s weaker fiscal position is mostly discounted in current bond prices, we nevertheless expect continued bouts of market volatility We are confident however that the Core Income Fund will continue generating predictable investment outcomes for our clients. From a long-term perspective, we are using the Fund's flexibility to take advantage of opportunities to buy into secure investments at attractive yields, as they arise. This will enable the Fund to continue delivering a high and reliable income stream and returns well in-excess of Money Market rates and inflation for many years to come. This makes the Fund an ideal income solution for moderately conservative investors with a 24-month time horizon.
|Fund/CPI||Direct Marriott Unit Trusts||Direct Marriott Solutions||Via a LISP|
|Living Annuity||Income Solution|
|Core Income Fund||✓||n/a||n/a||✓|
|High Income Fund of Funds*||✓||✓||✓||✓|
*The Marriott High Income Fund of Funds invests into the Core Income Fund and has the same outlook.
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Please note that Marriott does not charge any performance fees across its fund range.
|Fund/CPI||Marriott Annual Management Fee (excl. VAT)|
|Core Income Fund Class A||1.00%|
|Core Income Fund Class C (LISPs)||0.75%|
Collective investment schemes are generally medium to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. If required, the manager may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. Forward pricing is used. The ruling price of the day is calculated at approximately 15h00 SA time each day. Purchase and repurchase requests must be received by the manager by 15h00 SA time each business day. Prices are published on a daily basis on the Marriott website, www.marriott.co.za. Unit trusts are calculated on a net asset value basis. Net asset value is the value of all assets in the portfolio including any income accrual and less any permissible deductions from the portfolio. Marriott does not provide any guarantees with respect to the capital or the return of the portfolio. A schedule of fees and charges and maximum commissions is available on request from Marriott. Where initial fees are applicable, these fees are deducted from the investment consideration and the balance invested in units at the net asset value. Commissions and incentives may be paid and if so, would be included in the overall costs. Different classes of units apply to the fund and are subject to different fees and charges. Declaration of income accruals are monthly. Performance figures are based on lump sum investment. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Past performance is not indicative of future performance. This portfolio may be closed to new investors in order to manage it more efficiently in accordance with its mandate. The TER shows the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees relating to the management of the portfolio. A higher TER ratio does not necessarily imply poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Transaction Costs are a necessary cost in administering the Financial Product and impacts Financial Product returns. It should not be considered in isolation as returns may be impacted by many other factors over time including market returns, the type of Financial Product, the investment decisions of the investment manager and the TER. Marriott Unit Trust Management Company (RF) (Pty) Ltd is a member of the Old Mutual Investment Group. Old Mutual is a member of the Association for Savings and Investment South Africa (ASISA).
Please note that where the term ‘yield/yields’ is used, these are historic yields