NewFunds ILBI ETF
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Suitability: The NewFunds Inflation-linked bond index (ILBI) ETF is a total return index so it doesn’t pay any cash dividends. On a monthly basis coupons received are reinvested into the fund, increasing the net asset value of the portfolio and consequently increasing the value of each unit. It suits investors needing a core long-term bond holding to reduce risk in their overall portfolio.
What it does: The ETF aims to track the performance of the Barclays\Absa South African government inflation-linked bond index (ILBI). ILBI is a weighted basket of South African government inflation-linked bonds. The ETF tracks the component bonds of the index in proportion to the index weightings.
Advantages: The main attraction of bonds as an asset class within an investment portfolio is their low correlation with shares. And because the ETF is inflation protected, the initial amount invested will increase in line with inflation while also benefiting from returns in excess of inflation.
Disadvantages: The fund is designed to replicate the performance of the ILBI and does not make active bets relative to sectors, yield curve or credit quality. It is also restricted to certain government bonds, thus excludes corporate bonds and other issues by state-owned enterprises such as Eskom and Sanral.
Risk: The most common risks associated with fixed-income securities are inflation risk, credit risk and interest rate risk. However, because all of this ETF’s constituents are inflation-linked sovereign bonds issued by the SA government, they do not have inflation risk and credit risk is minimal. Interest rate risk arises from fluctuating interest rates. As interest rates rise, bond prices fall and vice versa.
Fees: NewFunds ILBI ETF has a total expense ratio (TER) of 0.28%.
Historical performance: Since its establishment in 2012, the fund has recorded AN annualised return of 5.58%.
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