A Portfolio That Simultaneously Achieves Long-Term Wealth And Short-Term Tactical Tilting

Core and Satellites Combine

‍The way that we construct our portfolios follows the same Investment Philosophy and Process designed by Lombard Barnard and Cephas Dube. This serves as the foundation to each portfolio we create. All of our portfolios have a ‘core’. This core holds a diverse range of multiple asset classes including; offshore and local investments in fixed income/flexible income/bonds, equity, property and includes technology driven algorithms for a moderate-to-aggressive risk and return profile.

Around this core we invest in satellite funds. These satellite funds usually specialise in specific asset classes (equity, property, income instruments or a blend of these). We invest inside these satellite funds because it causes up-weighting and down-weighting across asset classes. The reason for this, is so that we can tactically tilt the portfolio in accordance to different economic conditions, while simultaneously holding a fixed strategic view inside the core. The core itself does hold some tactical tilting to up-weighting and down-weighting certain asset classes, however dominantly holds strategic long-term views that in principle remain unchanged.

It is important to be able to balance the need to adjust a portfolio tactically, while still holding to strong strategic convictions. Strategic convictions hold to the long-term wealth generation inside a portfolio, where the short-term generation is tactical tilting. Looking at COVID-19 as an example, we deployed tactical tilting inside the portfolio’s core in May/June 2020, by entering into a short position on the local equity side. This decreases our short-term exposure to equity, while still holding those equity positions strategically for long-term wealth.

The Use of Different Portfolio Cores
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We have two main core combinations available. The first, is our combination core. This is our premium balanced view, which is a hedge fund and unit trust core composition. This holds our full monty of Fairtree specialized investing. The other core option is made up of a 100% unit trust core.

1. Unit Trust Only Core

This is a core that holds 100% unit trust composition. As mentioned, this Multi-Asset Worldwide core holds a diverse range of multiple asset classes including concentrated yet diversified equity, offshore and local investments in fixed income/flexible income/bonds, property and technology driven algorithms for a moderate-to-aggressive risk and return profile.

2. Combination Core of Hedge Funds and Unit Trusts

2.1. Hedge Fund and Unit Trust Core in a Discretionary space
This is our best opinion on a ‘balanced’ view for discretionary investing. Of the 100% core, 75% of it is made up of the Unit Trust mentioned above and 25% is the Hedge Fund solution. This hedge fund portion includes award-winning hedge funds blended together to serve the dual purpose of capital growth as well as capital preservation for the portfolio simultaneously.

2.2. Hedge Fund and Unit Trust Core in Regulation 28 environment
Again, this is our best opinion on a ‘balanced’ view made available in accordance to Regulation 28 compliance, for our Retirement Products (Retirement Annuities, Living Annuities and Preservation Funds). This divides the 100% core allocation between; the unit trust core mentioned above and the award-winning hedge fund solution. Leaving the total Hedge Fund allocation at a 7,5% for the portfolio.

Satellites and Risk
Satellite positions not only enable us to tactically tilt according to different market conditions and responses, but they also allow us to create different risk/return portfolios- while still holding to our core investment views. We will look at six different portfolios in the Regulation 28, retirement space to illustrate how we do this. With the portfolios we will be looking at; three will have the combination core (hedge fund and unit trust) and the other three will have a unit trust only core.

With each of them, we will see how we use satellite funds around the core to create these different risk portfolios. The unit trust core being used across all six portfolios is the Fairtree Worldwide Multi-Strategy Flexible Prescient fund.
(Construction allocation as for April/May 2020).

Illustrations using 100% Unit Trust as core:

Stable Multi-Managed Portfolio

Remember that the inclusion of satellite funds will cause changes in the overall asset classes which we invest in. In this Stable, lower risk, Portfolio, by adding the three satellite funds together with our core , we have a lower overall exposure to local and global equities, sitting at about 40%. Our local and global income-instruments allocation is quite high, at about 45%. This is perfectly fitting for a lower risk portfolio for clients looking to invest longer than 2-3 years.

Moderate Multi-Managed Portfolio

In this portfolio we take four satellite funds with our core and change their allocations. This is a more moderate/medium risk type portfolio. This combination increases overall exposure in local and global equities, totaling to about 60%. Our local and global income-instruments allocation is lower and is sitting at about 30%. Creating a really suitable medium risk portfolio for clients looking to invest longer than 4-5 years.

Balanced Multi-Managed Portfolio

For optimum growth and maximum risk, this portfolio takes on three satellite funds alongside our core. This is a more high-risk type portfolio. This combination now increases overall exposure to local and global equities, totaling between 70%-75%. Our local and global income-instruments allocation is lowered further, sitting at about 20%. This creates a really suitable high-risk portfolio for our clients looking to invest for longer than 6 years.

Illustrations Hedge Fund and Unit Trust as core:

Taking the same core from the above portfolios and combining the award-winning hedge funds alongside it, to form the new core. These different risk portfolios are again designed using satellite funds.

Stable Multi-Managed Portfolio

In this Stable, lower risk, Portfolio, by adding the four satellite funds together with our new core, we have a low overall exposure to local and global equities, sitting at about 40%. Our local and global income- instruments allocation is quite high, at about 45%. The new ‘asset class’ inclusion of Directional Diversifiers are about 4%. This is perfectly fitting for a lower-risk portfolio for clients looking to invest longer than 2-3 years.

Moderate Multi-Managed Portfolio

In this portfolio we take four satellite funds with our core and change their allocations. This is a more moderate/medium risk type portfolio. This combination increases overall exposure in local and global equities, totaling to about 60%. Our local and global income-instrument allocations are lower and are sitting at about 30%. The new ‘asset class’ inclusion of Directional Diversifiers are about 4%. Creating a really suitable medium-risk portfolio for our clients looking to invest longer than 4-5 years.

Balance Multi-Managed Portfolio

For optimum growth and maximum risk, this portfolio takes on four satellite funds alongside our core. This is a more high-risk portfolio. This combination now increases overall exposure to local and global equities, totaling between 70%-75%. Our local and global income-instruments allocation are lowered further, sitting at about 20%. The new ‘asset class’ inclusion of Directional Diversifiers are about 4%. This creates a really suitable high-risk portfolio for our clients looking to invest for longer than 6 years.

Should you wish to speak to a wealth manager please contact us on clientservices@fairtreeinvest.com

– Kheara Kroggel & Lombard Barnard