Growing and protecting cash in SA's current interest rate cycle

Cape Town  - In South Africa's current economic environment, with fluctuating interest rates and economic uncertainties, it is crucial for businesses to adopt strategies to optimise the cash on their balance sheets. With its strategic acquisition of ABSA Investment Management cementing its presence in the corporate cash space, Sanlam Investments Corporate Cash Solutions is designed to help SA Inc. do just that. This entails a careful balance between capital preservation, liquidity management, and the pursuit of long-term gains.

Bushey Matabane, Head of Corporate Cash Solutions at Sanlam Investments Active Manager, says, “At SI Corporate Cash Solution, we pride ourselves on our performance while being to the low risk of the investment spectrum. Our funds focus on their respective benchmarks and achieving these at the lowest level of appropriate risk. The returns of a fund should always be considered on a risk-adjusted basis.

“We are committed to client satisfaction through tailored cash management solutions that offer enhanced yields without compromising liquidity. Building strong client relationships, understanding their needs, and delivering excellent service are at the core of our approach.”

James Turp, Fixed Income Portfolio Manager at Sanlam Investments Active Manager, shares some additional insights into growing and preserving cash in the current climate:

1. How to Pick a Fund Focused on Capital Preservation: Capital preservation as a strategy involves selecting lower risk funds where the asset allocation is skewed towards assets with lower risk factors. In fixed income, this typically means shorter duration low credit risk funds without exposure to derivative type risks. For instance, a money market fund such as the *SIM Corporate Money Market Fund or the *SIM Core Income Fund are excellent examples of this strategy.

2. Balancing Liquidity Needs with Long-Term Investment Goals and Gains: Balancing liquidity needs with long-term investment goals is a highly personal decision. Liquidity requirements can vary, from being limited in long-term investments to being regular and predictable, or even unexpected, such as a contingency savings pool. Factoring in these requirements when forming an investment strategy is crucial in choosing the appropriate risk profile of a fund.

3. Benefits of a Fixed-Income Fund in the Current Economic Climate: Fixed income is the low-risk cornerstone of a portfolio. Real rates remain high and inflation is starting to move lower, with potential interest rate cuts on the horizon. While riskier investments may be tempting, fixed income funds continue to offer excellent returns in the current low growth environment. With last month’s MPC turning perceptibly dovish as inflation forecasts were marked slightly lower, as well as two members voting for a rate cut versus four for a hold on interest rates, we are moving closer to the beginning of the rate cutting cycle. 

Our funds have been adding moderate fixed rate exposure to take advantage of interest rates at current levels. Should rate cuts begin this can benefit the current positioning favourably. 

Matabane concludes, “Our carefully curated *SIM Corporate Money Market Fund and *SIM Core Income Fund are excellent options for capital preservation and liquidity. With R13.5bn in assets under management, the SIM Corporate Money Market Fund is ideal for corporates' working cash and offers same-day liquidity. The SIM Core Income Fund, with R20bn in assets under management, is best suited for strategic cash for periods of six months and longer, with liquidity available within 24 hours. These funds are designed to provide capital preservation, liquidity, and impressive yields.

“Harnessing the potential of corporate cash for a better, more resilient future is a crucial strategy in today's economic climate. By making cash work harder, businesses can achieve both security and growth in their financial operations."

* The full registered name of the portfolios are Sanlam Investment Management Corporate Money Market Fund and Sanlam Investment Management Core Income Fund.