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Jun 19, 2019

Income funds are critical building blocks of a balanced fund

Volatile equity markets emphasise the need for balance.

By Marcia Klein

Mixing income funds with equity in a balanced fund’s portfolio offers additional predictability and helps to protect capital and maximise income growth.

The Fairtree Flexible Income Plus fund invests in interest bearing and non-equity securities, including bonds, cash deposits, money market instruments, non-equity derivatives and JSE-listed preference shares.

The fund, which is largely invested in local money market and bonds but has some foreign exposure, is one of the investments of the Fairtree Balanced Prescient Fund and provides it with exposure to assets that balance risk and maximise returns for the fund.

Efficient construction

Louis Antelme, one of the portfolio managers of Fairtree Flexible Income Plus Fund, says the fund is a credit fund, with a portfolio of credit instruments aimed at extracting the credit spread. “Our whole thesis is that by efficiently constructing credit portfolios, we can make losses due to defaults more predictable and manageable and that we are overcompensated for the default risk that we assume.” The R2.1 billion fund can run some limited interest rate risk, although at the moment it has no exposure to interest rates.

Antelme says the credits pay a floating rate over a three-month Jibar (Johannesburg Interbank Average Rate; the money market rate used in South Africa). The fund can take up to 40% offshore, with the currency exposure always hedged.


“We try to diversify this fund as much as we can, to make losses due to defaults more predictable and manageable and so that we don’t suffer any catastrophic defaults,” Antelme says.

The fund was launched in 2013 and returns have been good, says Antelme, with an average annualised return since 2013 of 9.84% and a standard deviation of 1.82%.

He says Fairtree believes it improves the efficiency of a balanced portfolio to have some of the assets of a balanced fund in this fund due to its very low correlation to equity and other asset classes. Modern Portfolio Theory posits that if you combine many non-unity or negatively correlated assets you will reduce variance of the overall portfolio and hence optimise return for a given level of risk. The fund has very low correlation to other asset classes.


The fund managers “are not in the business of forecasting and don’t attempt to forecast currency movements or economic cycles and don’t try to time the credit cycle,” says Antelme. They do, however, believe they have an edge in the pricing of credit instruments.

The result is that the fund “has performed really well, and going back five years we have shown a steady return”, with a return of over 10% over one, two, three and five years, and a steady ranking near the top of its peer group.

Investors should bear in mind that income funds are a good building block for broader portfolios, with low correlation with other asset classes and lower variance.

Brought to you by Fairtree.

This article was originally published on To view the original, click here.




Nov 22, 2019

Is now the time to reconsider hedge Funds?

It is time to reconsider hedge funds’ rightful position in providing diversification in a client’s investment portfolio


Jun 10, 2019

Multi Asset Class Fund

Published on Moneyweb 28 May 2019


Jun 10, 2019

Fairtree’s balancing act

Featured on Moneyweb 27 May 2019



Investors should take cognisance of the fact that there are risks involved in buying or selling any financial product and that past performance of a financial product is not necessarily indicative of its future performance. The value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. 

Hedge funds are portfolios of collective investment schemes and are regulated under the Collective Investment Schemes Control Act, 45 of 2002. Investments in portfolios of collective investment schemes are generally medium to long term investments. Collective investments are traded at ruling prices and may engage in scrip lending and borrowing. The manager of a collective investment scheme may close a portfolio to new investors in order to manage the portfolio more efficiently in terms of its mandate.

The information and documentation presented on this site do not constitute a solicitation, invitation or investment recommendation. Prior to selecting a financial product or fund it is recommended that investors seek specialised financial, legal and tax advice. Fairtree Asset Management (Pty) Ltd accepts no liability of any kind resulting from reliance being placed on any information contained on this website. Fairtree Asset Management (Pty) Ltd endeavours to provide accurate and timely information, but makes no representation or warranty as to the correctness, accuracy, completeness or suitability of any of the information contained on this website. The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of this website.


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