CADIZ ASSET MANAGEMENT

Monetary policy developments dominated fixed income markets in September, as several major central banks convened amid shifting global growth and inflation dynamics. The US Federal Reserve cut its policy rate by 25 basis points, citing a softening labour market and easing inflation pressures. The European Central Bank and the Bank of England maintained their policy rates but adopted a more cautious, data-dependent stance, signalling that restrictive policy settings may persist until inflation sustainably trends toward target. These actions collectively underscored a more balanced global monetary policy outlook.

Bond yields declined across most developed markets, with the US 10-year Treasury yield falling 8 basis points to 4.15%, while German and UK yields eased marginally. Disinflation trends continued in the US, with Core PCE tracking near 2.9%, though tariff risks pose potential upside pressures. Investment grade (IG) credit remains supported by healthy corporate fundamentals, tight spreads, and disciplined issuance, while high yield (HY) continues to offer attractive carry despite stretched valuations and late-cycle risks.

In South Africa, economic data surprised to the upside. GDP expanded by 0.8% q/q in Q2 2025, driven by resilient household consumption and a sharp rebound in private investment. Inflation eased to 3.3% y/y in August, its lowest in over a year, aided by softer food and energy prices. The South African Reserve Bank held the policy rate steady at 7.0% in a split decision, reflecting growing debate over future easing.

The domestic bond market delivered strong performance, with the ALBI up 3.37% as long-dated yields declined sharply. Inflation-linked bonds also rallied, supported by improved demand and falling real yields. Looking ahead, contained inflation and subdued growth are likely to sustain a lower-yield environment, though global policy uncertainty remains a key risk to domestic fixed income markets.

The Cadiz BCI Money Market Fund continued to deliver on its mandate, achieving competitive returns for September. With the South African Reserve Bank keeping interest rates unchanged, short-term yields remained steady, allowing the fund to maintain strategic positioning along the yield curve. Its focus on high-quality corporate credit enhances yield while ensuring compliance with mandate parameters and avoiding undue risk. The fund remains conservatively managed, balancing liquidity, income generation, and capital preservation. Over the long term, it has consistently outperformed its benchmark, the Alexander Forbes Short Term Fixed Interest (STeFI) Composite Index, delivering stable risk-adjusted returns across varying market conditions.

At the end of September, the fund’s forward yield stood at 7.71%, reflecting its attractive risk-adjusted profile and its ability to generate steady income in a moderating interest rate environment.

The Cadiz BCI Enhanced Income Fund performance for September was primarily driven by the fund’s exposure to nominal bonds, supported by allocations to corporate credit and inflation-linked bonds. The fund maintained a strategic position across the medium and long ends of the interest rate curve, enabling it to benefit from gains realised in these segments during the month. Although credit spreads remained tight and demand for corporate paper continued to exceed supply, the fund successfully identified and accessed selective opportunities in this space, contributing to enhanced yield. Trading activity during the month was influenced by portfolio positioning, cash flow dynamics, and the reinvestment of maturing assets.

At the end of September, the forward yield of the fund was 8.52%, with an effective duration of 0.64.

The Cadiz BCI Absolute Yield Fund’s performance for September was primarily supported by the fund’s exposure to nominal bonds, complemented by allocations to corporate credit and inflation-linked bonds. Trading activity during the month focused on deploying available cash, repositioning the portfolio, and reinvesting proceeds from maturing instruments. Duration exposure was tactically increased in response to evolving market conditions and in alignment with the fund’s strategic outlook. The fund remains actively managed, with an emphasis on identifying and capturing value opportunities across the yield curve while maintaining disciplined adherence to mandate parameters and a strong focus on effective risk management and capital preservation.

At the end of September, the forward yield of the fund was 8.64% and duration was slightly longer at 1.98.

The Cadiz BCI Bond Fund once again delivered positive returns for the month of September. Performance was supported by the fund’s longer duration positioning and the broad-based decline in yields, as markets initially priced in expectations of further monetary easing. The medium- and long-term segments of the yield curve were the strongest contributors to performance, benefiting from favourable market movements. The FTSE/JSE All Bond Index (ALBI) also posted a positive return for the month, bringing its year-to-date performance to 14.02%. The fund remains strategically positioned to capture opportunities across the yield curve while maintaining a disciplined and risk-aware approach to duration management.

At the end of September, the forward yield of the fund was 9.10% while duration was lengthened to 6.13.