The Coronation Bond Fund focuses all of its resources on investments in the South African bond market. However, foreign bonds can also be invested in by the fund. Foreign bond investments are only limited to 10% of the fund. Therefore, 90% of the fund will be invested in bonds.
The fund aims to invest in a range of government and corporate bonds. As of 2023, government bonds hold a chunk of the investment portfolio, with 86.1% of the fund invested in government bonds. The fund also invests in bonds that are issued by parastatals but currently do not hold a significant share of the fund.
Since the fund invests in funds, it provides a moderate risk to investors. The fund is less volatile than the fund that invests in equities, but it is more volatile than the fund that only invests in money market instruments. This can be seen from the fund’s historical performance.
Since the fund’s inception, it has managed to grow by 1261.6%. As a result, it has averaged growth of 10.8%. The fund was launched on August 1, 1997, and has the BEASSA ALBI Index as its benchmark. The benchmark has recorded 1239.7% growth since the fund’s inception and average annual growth of 10.7%.
The fund and the benchmark are not apart when it comes to performance, since the difference between the two is that the fund has managed to outgrow the benchmark by 0.1% on average. This doesn’t mean the difference isn’t significant since 0.1% yearly growth can yield high returns for investors.
The Coronation Bond Fund has a track record of 26 years, and the fund can now be measured reliably. We discuss the fund in greater detail below so that you can better understand it.
Coronation Bond Fund summary
The Coronation Bond Fund is a unit trust that invests in a diverse range of South African bonds with a foreign exposure limit of 10%. The Coronation Bond Fund is worth R14.09 per unit and has a fund size of R4.31 billion.
The fund’s investments include 87.2% government bonds and it also investments in state-owned entities. The fund also invests in banks, with more than 10% of its assets invested in banks.
A bond fund can come with a high level of risk. However, the Coronation Bond Fund comes with moderate risk to the investor. The fund is mainly suitable for those that want to diversify into the South African bond market. The fund recommends that investors hold their investment for at least 3 years.
Even for short-term investors, an investment in the Coronation Bond Fund has the potential to provide above-average returns. From September 1998 to August 1999, the fund had an annual all-time high of 34.5%. Given the fund’s average annual return of 10.8%, it can certainly produce returns that outperform the South African inflation rate.
The fund consistently produces positive results, but it is not immune to declines. The Coronation Bond Fund experienced a record annual low of 7% between September 1997 and August 1998.
To achieve such high returns and mitigate losses, the fund has structured its fund in the following way.
|2||State Owned Entities||1.2%|
|3||Banks and Insurers: NCDs and deposits||4.3%|
|4||Banks: senior debt||5%|
|5||Banks: subordinate debt <12m||0.8%|
|6||Banks: subordinate debt >12m||1.3%|
|10||Other (currency futures)||0%|
Note that the Holdings in the assets above can be rebalanced from time to time to take advantage of the bond market.
We have compiled a list of 5 top bond issuers per the Coronation Bond Fund. The list is as follows.
Top 5 holdings of the Coronation Bond Fund 2022
|1||Republic of South Africa Government Bonds||86.1%|
|4||Standard Bank of South Africa Ltd||3.5%|
|5||JP Morgan Chase Bank||3%|
How the Coronation Bond Fund works
The Coronation Bond Fund doesn’t adhere to the threshold as set out in Regulation 28 of the Pension Funds Act 24 of 1956. The fund instead invests in bonds, which make up the entire portfolio. Retirement investors are therefore not permitted to invest in the fund.
To get started with the fund, one has to make an investment using an investment vehicle. These should include any vehicle except for those that are intended for retirement investments. Endowments, preservation funds, and more should not be used.
A minimum investment threshold will have to be met to get started. The money invested will be used to purchase units of the fund. The fund’s performance will determine the growth or decline of the fund.
For the management of the fund, the Coronation Bond Fund charges a fixed fee of 0.75% (VAT exclusive). Other fees relating to transacting and managing the fund are levied. These costs vary per year.
Advantages of the Coronation bond fund
- The fund is more defensive and has some focus on capital preservation.
- The fund provides returns that are above the South African inflation rate.
- There are two ways to make contributions to the fund.
- The fund is able to outperform or match its set benchmark.
- The minimum contribution requirement is low when compared to other minimum contributions from similar funds.
- Fees related to investing in the fund are low.
Disadvantages of the Coronation Bond Fund
- Investments in the short term may suffer losses due to the fluctuations of the fund.
- Capital is not guaranteed when an investment is made in the fund.
The Coronation Bond Fund is a unit trust to use if you want to invest in a fund that focuses entirely on investing in South African bonds. The fund doesn’t come with many risks as compared to other concentrated funds, such as the Coronation SA Equity Fund, and provides moderate risk for investors, whereas the industrial fund is aggressive.