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BIPS Inflation-X

A rare opportunity: An investment which offers you a return in excess of inflation

For the first time in South Africa, investors will have access to Inflation-Linked Bonds through the JSE.

Bips Inflation-X is an exchange traded fund (ETF)* comprising of the four government-issued Inflation-Linked Bonds. The Initial Public Offering (IPO) opens on May 4th and closes on May 15th. The bond will list on the JSE on May 20th.

Up until now, Inflation-Linked Bonds have been difficult to access for individual investors and small- and medium-size asset managers. With the advent of this ETF, it will now be possible for investors to purchase inflation protection on the JSE in a way which will be just like trading a normal share.

“In the current economic climate, very few asset classes can offer investors guaranteed cash flows, capital preservation and a natural hedge against inflation,” says Leonard Jordaan, co-head of ETF’s at Rand Merchant Bank (RMB), which manages the fund. “Equities are extremely volatile at present and their income-generating potential has been largely reduced by the dividend cuts made by many listed companies. At the same time, falling interest rates and an uncertain inflation outlook have reduced the attraction of money market investments.”

In comparison, Bips Inflation-X offers investors an alternative asset class which provides the investor with a relatively attractive, real rate of return (currently 2.35% over the long term) in excess of inflation. This is an important feature of the product and should be the main focus when making an investment decision.

Distributions, in the form of interest on the underlying bonds, are made to investors quarterly (net of fees). The initial investment is continuously adjusted for headline inflation and the interest received (currently 2.35%) is calculated on the inflation- adjusted investment, thus also providing investors with an inflation- adjusted cash flow.

Bips Inflation-X will track the performance of the Government Inflation-Linked Bond Index (GILBx), which will be published daily on the Bips website (www.bipsetf.co.za). Management fees are comparatively low starting at just 0, 39% and reducing on a sliding scale down to 0, 10% depending on the amount invested. This makes Bips Inflation-X, one of the cheapest funds to invest in.

Listing date is the 20th May 2009.

End.

Note: *An Exchange Traded Fund (ETF) offers exposure to a basket or group of securities such as equities or bonds by combining a diversified group of assets or “baskets” into one fund. ETF’s are listed on exchanges and can be traded at any time the market is open.