Commentary for the quarter ended 31 March 2025
Performance Review
The Northstar Income Fund outperformed peers over the quarter, delivering a return of 1.82% compared to 1.57%. Despite this r elative outperformance, it was a more challenging quarter for longer-duration assets, resulting in a slight underperformance relative to its benchmark, the SteFI Call Deposit x110%, which returned 2.0%.
Over 12 months, the Northstar Income Fund delivered a return of 11.0%, significantly ahead of the benchmark return of 8.8%.
Inflation-linked bonds with an average weighting of 38%, were the strongest contributors to performance, adding 98 basis points. Notable contributors included overweight positions in the I2029, R210, and I2025.
An average weighting of 32% to fixed-rate bonds provided the second-largest contribution of 45 basis points, due to key exposures to the R2032, R2030, R2033, and R2035.
Floating rate notes, with an average weighting of 18% contributed 35 basis points.
Our gold allocation contributed 35 basis points to performance, making it the single largest contributor among alternative assets, although this position has since been reduced to 2%, which is below the strategic benchmark weighting of 5%.
Market Outlook
National Treasury remains committed to fiscal consolidation and debt stabilisation, with a renewed focus on infrastructure investment, despite mounting political constraints and social pressures. Given South Africa’s prolonged economic stagnation, it is encouraging to see continued progress on structural reforms, which are expected to lift real growth to 3.5% by 2029 if implemented. While these reforms have started to unlock private sector investment across key network industries and have modestly improved sentiment, fixed capital formation and employment growth remain subdued.
SA-US relations are under strain due to geopolitical posturing, increasing risks to investor sentiment. As South Africa continues its G20 presidency, diplomatic engagement, particularly with the U.S., will be essential to preventing further fiscal risk from being priced into local assets especially amid ongoing GNU-related uncertainty and broader global market volatility. Grey listing concerns persist, but in February, FATF confirmed that South Africa has largely addressed 20 of 22 action items, putting the country on track for potential removal from the grey list by October 2025.
Globally, rising volatility is prompting questions about whether we are entering a new regime of macro and market volatility shaped by persistent policy uncertainty and geopolitical fragmentation. For South Africa, these global dynamics may further complicate already fragile domestic conditions. In this context, the Rand remains stable but undervalued, local bonds are reasonably priced yet sensitive to global yield shifts, and the SARB continues to adopt a cautious stance in navigating an increasingly uncertain macro landscape.
Portfolio Positioning
As at the 10th April 2025, the Northstar Income Fund has an 85.5% exposure to local bonds, split almost evenly between fixed (30.4%), inflation-linked (27.9%) and floating rate notes (27.2%). The balance of 14.5% is split between the Northstar Global Income (6.2%), Global Bond ETF (2.1%), SA Property (0.8%), Gold ETF (2.2%) and cash (3.1%).
The above asset allocation is informed by our latest portfolio optimisation exercise, which seeks to maximise the portfolio returns within a 3% standard deviation risk limit. The risk tolerance of the Northstar Income portfolio is in-line with the SA Multi-Asset Fixed Income peer average and equates approximately to half the risk of the All Bond Index.
Northstar Income fund portfolio, which Includes a mix of lower yielding offshore assets, is trading on a yield of 8.8% (9.5% local assets) and a modified duration of 2.6.
