Amplify Investment Partners has launched two new funds aiming for outperformance while managing volatility. The Amplify SCI Cautious Retail Hedge Fund and the Amplify SCI Stable Income Retail Hedge Fund follow closely on the recent launches of the Amplify SCI Property Retail Hedge Fund and the Amplify SCI Active Equity Retail Hedge Fund.
Amplify’s increasing range of investment options and the strong performance of its range of long-only and hedge funds have resulted in increasing investor interest, with its assets under management increasing strongly to R66bn currently, up from R46.7bn at end-2023.
The Amplify SCI Cautious Retail Hedge Fund is managed by Southchester Investment Managers, a niche fixed income asset manager. Southchester specialises in creating and managing short-term liquid portfolios and alternative fixed income asset classes and focuses on consistency of returns and liquidity management.
Jeleze Hattingh, Southchester Investment Managers CIO and portfolio manager, says the fund’s managers run a cautious fixed income strategy aiming for consistent returns, with a STEFI benchmark and a target of STEFI +3.
The investment strategy is conservative and active, aiming for low volatility based on a transparent geared fixed interest framework. Returns are generated from trading spreads between fixed and floating investments, using derivatives for hedging, with a strong focus on managing liquidity risk.
Currently, the fund has over 80% exposure to high-quality SA government and corporate bonds, and money market instruments and cash equivalents, to ensure low corporate credit risk. Interest rate risk is minimised through targeted hedging strategies.
The fund will be run with a similar strategy to the Southchester Smart Escalator Prescient QIF, which has in excess of 85% exposure to SA government and major SA and international banks. The fund has shown consistent returns since inception in 2017, with annual after-fee returns in excess of repo +6% (at 12.9%) through the cycle, against a benchmark repo +4% of 10.1%. The fund has won the HedgeNews Africa fixed income hedge fund of the year for five of the last seven years.
The Amplify SCI Cautious Retail Hedge Fund is aimed at investors with a cautious risk profile, looking to generate returns above short-term interest rates. A unique aspect of this fund is that it is able to consistently deliver high relative returns with lower relative risk by focusing on liquidity management.
Looking ahead, Hattingh says that spreads are compressing in volatile markets, and government bond yields are at five-year lows while short-term rates are close to their five-year lows. This provides few opportunities in government bonds. However, she says that the investment philosophy applied to the fund provides the basis for finding yield and returns above cash.
The Amplify SCI Stable Income Retail Hedge Fund, managed by Ninety One, is a fixed income hedge fund with a target of ZAR cash +4% over 12 months. The fund is invested in SA fixed income assets, listed property and offshore, with an absolute return focus. It is based on Ninety One’s Fixed Income Hedge Fund (which moved to Amplify and was rebranded), which has produced 12.9% returns per annum since inception in 2004 against the STEFI’s 7.1%. Over three years, it produced returns of 14.4% compared to the STEFI’s 7.6%.
Portfolio manager Malcolm Charles said the fund has, in the long term, significantly outperformed STEFI and cash, while managing volatility.
The Amplify SCI Stable Income Retail Hedge Fund looks to maximise income and take opportunities from time to time to enhance overall return “when we feel the likelihood of our view coming through is very good.”
“What differentiates us is that we see three main opportunity sets in the SA bond market,” Charles says, referring to credit, duration and relative value. The cornerstone of all its funds is credit, where the extra yield is very attractive, and about 50% of the portfolio is in good quality, investment-grade credit, which typically generates cash +1%. It also includes some offshore investments and listed property, using them as a protective strategy.
The fund tends to take fewer but larger and more rewarding positions. Most of the value created is in relative value, driven mainly by SA idiosyncratic events, including interest rates and inflation, and how assets move relative to one another.
It has an absolute return philosophy for investors seeking a stable return profile.
Charles says that generally, markets misprice through constrained trading (heightened risk and balance sheet management), and lazy consensus views. “When we are neutral, we sit in cash. We only take positions and put risk on when we have high conviction,” he says. The absolute return philosophy takes advantage of these mispricings by using proprietary analysis, informational networks, and by combining market-neutral and directional views that often differ from consensus with high conviction.
Currently, the managers’ view is that inflation is well contained, which is good for the bond market, and there are some green shoots of change at SOEs. Charles says loadshedding was the key driver of rand weakness, and the rand has bounced back as loadshedding was brought under control.
In an uncertain world in 2025, the market appears to be somewhat fatigued with the craziness in the US, and may look through a lot of what US President Donald Trump says, although there will be volatility, especially regarding a trade deal with China.
The bond market remains very attractive, and SA bond yields are very cheap relative to EM peers, cash and inflation. The fund is overweight SA bonds, and overweight the long end of the curve, and underweight the shorter end. The fund has 50% in good-quality credit, giving it extra yield and return. “We are quite constructive at the moment. Some bumps are likely this year, but the biggest bumps are behind us, and we are excited about the opportunity set in the bond market,” Charles says.
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