Coronation SA Income Fund

PERFORMANCE

The Fund returned 1.37% for the quarter ended 30 September 2026 (Q3) versus 1.72% for the STeFI Composite, underperforming by 35 basis points (bps). Over 12 months, it returned 7.52% versus 6.97%, outperforming by 54bps.

ASSET CLASS PERFORMANCE AND ECONOMIC BACKDROP

The quarter saw a sharp reversal of Q2’s bond rally, as a renewed oil price shock and a fresh wave of global monetary tightening weighed on fixed income markets. The portfolio’s conservative sub-10-year duration positioning and asset allocation helped limit the drawdown but was not sufficient to avoid a modest underperformance against cash for the quarter.

The domestic inflation picture proved volatile over Q3. June CPI surprised sharply to the upside at 5.0% year-on-year (y/y), driven by a surge in fuel prices and a marked acceleration in services inflation (core CPI rose to 4.1% y/y from 3.8% in May). Inflation then moderated to 4.3% y/y in July, before ticking up again to 4.4% y/y in August (core 4.1%). Looking ahead, a further large fuel price increase of around 9.6% m/m is expected in October, which is likely to push headline inflation back above 5% y/y in the final quarter of the year.

On the growth side, real GDP contracted by 0.2% quarter-on-quarter (q/q) in Q2 (Q1 revised down to 0.4% from 0.5%). Weakness was concentrated in mining, manufacturing and trade, although household spending showed encouraging resilience and capital expenditure was less weak than in the prior quarter. In response, the South African Reserve Bank (SARB) revised its 2026 GDP growth forecast back down to 1.2%, while retaining its 2027 and 2028 forecasts of 1.7% and 1.9%, respectively. On the fiscal front, National Treasury’s funding programme remained proactive, with year-to-date financing running ahead of Budget and bond switches progressing at a healthy pace. This continued to underpin market confidence in the funding trajectory.

The global backdrop was dominated by renewed Middle East hostilities and the resulting oil price shock, which sustained inflationary pressure across developed markets and prompted fresh monetary tightening. The US Federal Reserve and European Central Bank both hiked 25bps during the quarter, and the Bank of England is largely expected to follow in the coming months.

Domestically, the SARB Monetary Policy Committee (MPC) delivered a surprise hold in July, voting 4:2 in favour of keeping the repo rate unchanged at 7.00%, citing an improved near-term inflation baseline despite ongoing uncertainty. This reversed in September, when the MPC voted unanimously to raise the repo rate by 25bps to 7.25%, as renewed oil-price-driven inflation shifted the balance of risks. The SARB’s average headline CPI forecast for 2026 was revised up to 4.4%, with inflation now seen peaking at 5.4% in Q4. We see inflation risks as broadly balanced from here, while growth risks are skewed to the downside. A further hike cannot be ruled out, but we believe the SARB would be reluctant to deliver the three additional hikes currently priced by the market.

Domestic nominal bonds reversed sharply after Q2’s rally, with the All Bond Index returning -0.68% for the quarter as yields rose across the curve. The move was led by the long end of the curve: the 1- to 3-year segment still returned +1.92%, the 3- to 7-year segment eked out just +0.25%, while the 7- to 12-year and 12-year+ segments returned -0.71% and -1.47%, respectively. The South African 10-year yield rose by around 58bps over the quarter, ending at 9.02%, as the global sell-off in developed-market government bonds and the SARB’s September hike weighed on sentiment.

Inflation-linked bonds fared somewhat better, with the FTSE/JSE Composite Inflation-Linked Bond Index returning +1.45% for the quarter, as rising inflation accrual offset the increase in real yields. Real yields across the curve also rose meaningfully over the quarter, restoring some of the attractiveness of these instruments as both a yield source and a hedge against the upside inflation risks.

PORTFOLIO POSITIONING

Portfolio positioning remains conservative, with sub-10-year nominal and inflation linker exposure helping to limit the impact of the sell-off. Inflation-linked bonds remain a structural holding with their value being an inflation hedge, particularly in this volatile environment. Bank credit and floating-rate note allocations remained selective, with spread compression in the banking sector continuing to constrain the opportunity set.

OUTLOOK

Looking ahead, the macro environment remains challenging amid ongoing inflation volatility. Against this more challenging backdrop, a conservative duration stance, high-quality money market exposure, and selective allocations to nominal and inflation-linked bonds across the sub-10-year curve are expected to continue generating returns above the cash benchmark and supporting the Fund’s cash-plus objective over the medium term.

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