By Paul Crawford,

Fixed Income Portfolio Manager

In an ever-evolving financial landscape, the demand for diversified investment opportunities is at an all-time high. The BCI Fairtree Global Flexible Income Plus Feeder Fund offers South African investors a gateway to the global credit market, leveraging Fairtree’s proven expertise in navigating this complex asset class. In this article, we’ll explore the key aspects of this fund, breaking it down into three essential components: What it is, How it is done, and What it isn’t.

What is it?

The BCI Fairtree Global Flexible Income Plus Feeder Fund was created in response to growing demand from clients who wanted access to global credit through an offshore vehicle, specifically an offshore version of the BCI Income Plus Fund. Initially, Fairtree launched the Euro-denominated Fairtree Global Flexible Income Plus Fund, targeting Euro-hard currency-based investors. However, this raised the question: How could ZAR-based investors participate?

The solution was the BCI Fairtree Global Flexible Income Plus Feeder Fund (“Feeder Fund”). This Feeder Fund enables ZAR-based investors to gain unhedged exposure to global credit by feeding directly into the Euro-denominated Fairtree Global Flexible Income Plus Fund. Essentially, it allows investors to use their offshore investment allowances to access global credit without the complexity of managing foreign currency accounts or navigating the mix of domestic and offshore investments present in the BCI Income Plus Fund.

Launched in April 2019, the Feeder Fund has established a robust five-year track record, mirroring the success of the BCI Income Plus Fund, which celebrated its 10-year anniversary this year. With the Feeder Fund, investors can conveniently invest using their rand-based accounts while enjoying the advantages of global diversification.

How it is done?

The Fairtree Global Flexible Income Plus Fund, domiciled in Ireland and launched in January 2019, focuses on capturing spread premiums (EURIBOR + Spread) while hedging all FX risk and taking no duration risk. The fund’s benchmark is the iTraxx XOver Total Return Index, and it invests in a diversified portfolio of corporate bonds, government bonds, AT1 bank instruments, and index-linked notes. With 39 instruments and 350 underlying names, the fund is well-diversified and positioned to navigate the complexities of global credit markets.

The Feeder Fund operates through a straightforward structure, as shown in Figure 1 below.

• Investor contributions: South African investors contribute rands to the Feeder Fund.
• Currency conversion: These rands are converted into euros, which are then used to purchase units in the Euro-denominated Fairtree Global Flexible Income Plus Fund.
• Performance translation: The performance of the Euro-denominated assets is then translated back into rands, allowing investors to benefit from global credit exposure while managing currency risk.

Figure 1: The Feeder Fund structure