Unchanged rates provide high yield opportunities

By Luigi Marinus

On Wednesday 27 March the Monetary Policy Committee (MPC) announced their latest decision on short term interest rates. Although inflation remained within the 3% - 6% target band for the last nine consecutive months, the latest print of 5.6% is above the 4.5% unofficial level that the MPC targets. This sticky inflation has been the contributor to the repo rate being left unchanged at 8.25%.

The global narrative has been that the US Federal Reserve will reduce interest rates in 2024 and other countries will follow shortly thereafter.

PPS Investments have remained cautious in allocations with regard to this outcome, believing that this may take longer to play out. As a result, the allocation to cash remains overweight across portfolios which benefit from the high yield.

The PPS Enhanced Yield Fund, which is the cash building block, currently offers a 9.7% 12-month forward yield with very little interest rate risk. There may be some apprehension with markets impatiently waiting for the first rate cut, but there are also some opportunities that the PPS funds can take advantage of while short-term interest rates remain unchanged.

With the likelihood of rates remaining relatively high, investors should be asking their financial advisors if their personal portfolios are effectively diversified to benefit from the high yield opportunities the market is providing.

PPS Investments Group is a subsidiary of Professional Provident Society Insurance Company Limited, a Licensed Insurer and Financial Services Provider. PPS Investments Group consists of the following authorised Financial Services Providers: PPS Investments (Pty) Ltd(“PPSI”), PPS Multi-Managers (Pty) Ltd(“PPSMM”) and PPS Investment Administrators (Pty) Ltd(“PPSIA”); and includes the following approved Management Company under the Collective Investment Schemes Control Act: PPS Management Company (RF) (Pty) Ltd (“PPS Manco”).

Collective Investment Schemes in Securities (CIS) are generally medium-to long-term investments. The value of participatory interests (units) may go down as well as up, and past performance is not necessarily a guide to future performance.