STANLIB has recently launched its first Bond Index (ALBI) Tracking Fund, a unit trust fund that provides investors with a low cost exposure to bonds.

Where previously bond indices included illiquid assets and were not replicable, the changes to the method of calculating indices now make them appropriate for index funds.

“Indexation is becoming more prevalent locally and we expect this trend to continue”, said Len Jordaan, Head of Distribution for STANLIB Index Trackers.

The ALBI Tracking Fund will hold mainly government and quasi-government debt.

The Fund is a long-term investment aimed at investors with a time horizon of a minimum of three to five years and is suited to conservative investors with a low risk appetite.

As such, it can be used as a core bond portfolio holding around which active strategies such as corporate and inflation-linked bonds can be employed.

Jordaan said this strategy reduces the overall cost of the portfolio.

STANLIB, SA’s third largest asset manager with a presence in ten African countries, sees local investors moving towards the core-satellite approach, with passives at the core.

“Lower cost index products are becoming the core and higher cost, high alpha products the satellite. Passive exposure in an investor’s portfolio lowers overall costs, and given the current low return environment, a bond tracker fund makes a lot of sense”, said Jordaan.

Passive funds have an important role to play in a balanced portfolio as they complement actively managed funds.

Furthermore, there is a growing investment trend that anchors on asset allocation over stock selection strategies.

“We believe that optimal portfolios have a combination of active and passive bond fund holdings. The Fund is suitable for investors in retirement annuities, preservation funds, pension funds and provident funds or as the bond allocation of a multi-asset portfolio. As a specialist product, it should form part of a broadly diversified investment strategy”, said Jordaan.

The STANLIB Bond Index (ALBI) Tracking is the asset manager’s fifth index fund.

STANLIB introduced its first passive product in 2002, and now manages in excess of R12bn ($1bn) in index products, including unit trusts and ETFs.