Commentary for the quarter ended 30 June 2025
Performance Review
The Northstar BCI Income Fund has consistently outperformed its cash plus benchmark (SteFI Call x110%) and peers, with a 3-month return of 2.95% (compared to a benchmark of 1.98% and peers at
2.50%) and a 12-month return of 10.49% (outperforming the benchmark of 8.71% and peers at 10.14%).
The quarter was marked by significant market volatility across asset classes, triggered by President Trump’s announcement of tariffs on April 2, which initially led to a global equity sell-off. Markets rebounded sharply after the tariff deadline was postponed by 90 days, supported by robust corporate earnings, signs of contained inflation, ongoing economic resilience, and rapid advancements in artificial intelligence.
Globally equities and bonds performed well in USD terms, bolstered by a weaker Dollar amid rising fiscal concerns.
Locally, despite diplomatic tensions and a volatile Rand, South African equities performed well with a
9.5% return, and fixed bonds delivered 5.9%. The fund’s 33% weighting in fixed bonds made the most significant contribution, at 1.9%; however, the 28% in floating-rate notes and 29% in inflation-linked bonds also contributed, with respective contributions of 61bps and 38bps.
Despite Rand strength of 3.4%, the 8% exposure to the Northstar Global Income Fund contributed 8bps as a result of its 4.3% return in USD terms.
Market Outlook
Looking ahead, global markets are expected to remain volatile but supported by strong fundamentals in select sectors. Continued advancements in technology and stabilizing inflation provide a constructive backdrop for global equities, particularly in the Information Technology and Communication Services sectors. However, risks, including stretched US equity valuations, geopolitical tensions, and fiscal concerns in major economies, could temper gains. Rising commodity prices, particularly for gold and platinum, driven by safe-haven demand and Chinese industrial demand, respectively, may continue benefiting resource-heavy markets like South Africa.
Locally, the formation of the Government of National Unity has bolstered investor confidence, while infrastructure upgrades and the end of load shedding have contributed to sustained economic momentum. The JSE All-Share and All Bond respective index gains of 9.5% and 5.9% reflect these tailwinds. With inflation stabilizing below 5% and the South African Reserve Bank eyeing potential rate cuts by 2026, consumer confidence is expected to improve, lifting domestically focused assets, such as
fixed bonds and equity sectors, including banking and retail.
Portfolio Positioning
The Northstar BCI Income Fund remains well-diversified, striking a balance between opportunity and caution to achieve a 2% real return for low-risk investors. The fund maintains a predominant exposure to high-quality sovereign debt and top-rated bank debt, spread across fixed bonds, inflation-linked bonds, and floating-rate notes. In addition, the portfolio has a 15% weighting in Bank AT1 paper with an average maturity of 2.5 years, and the balance is allocated to a diversified set of global assets at 7%.
The Northstar Income Fund has a weighted average yield of 8.2%, a maturity of 3.95 years, and a modified duration of 2.48.
