By: Ryan Jamieson; Fairtree Retail Head (Gauteng & KZN) for financial advisors & professional investors.
The Fairtree Flexible Income Plus Prescient Fund (the Fund) reached an impressive 10-year milestone and has rewarded investors with an annualised return of 8.75%1 after fees since inception2.
But the return alone from the Fund shouldn’t be viewed in isolation. Several pertinent points continue to weigh in favour of the strategy and remain important considerations for existing and new investors alike.
1. A steady, long-term return stream
Investors have been drawn to the steady return generated by the Fund. The long-term trend line has been relatively predictable and boring and investors have been rewarded with returns in excess of traditional asset classes like bonds and cash over time. Bear in mind that the past decade for markets has been volatile and challenging – to say the least. By way of example, the worst net monthly return for the Fund over the last 10 years was in March 2020 – the beginning of the Covid-19 crisis – and the Fund was down almost 1% after fees for the month. This drawdown took place at a time when the local equity market had fallen >30%. But, reassuringly, despite short-term noise, the Fund stages the necessary comeback and double-digit calendar year returns have featured in the performance history of the Fund – despite headwinds often posed by markets overall.
2. Low standard deviation
The team has been managing a credit strategy for almost two decades. The intention is to manage the Fund with low volatility of returns, and the Team sets out to achieve this by aiming to keep the standard deviation or risk below 3%. The fund’s standard deviation is currently less than 2%. Managing a credit strategy with low volatility of returns ensures that a more predictable return stream is achievable over time and also means that investors don’t receive any nasty surprises along the way.
3. A well-diversified credit strategy – with local and global exposure
The Fund is well diversified and it comprises local and global asset class exposure. All offshore positions are hedged back to ZAR so that the impact of currency movements on the Fund are negated and the volatile FX swings of the ZAR strengthening or weakening don’t influence the return stream of the Fund. The offshore allocation in the fund is currently around 30% – this is mainly made up of exposure to EUR and USD credit instruments.
4. Portfolio construction benefits
A credit strategy plays an important role in a well-diversified investment portfolio. Including the Fund alongside traditional asset classes like equities, bonds and cash may enhance overall portfolio returns and reduce a portfolio’s overall level of risk. The risk or standard deviation of the Fund (1.82% as at 31 May 2023) sits between cash (STEFI) and bonds (ALBI), which means that including a credit strategy can have a meaningful role to play when constructing a portfolio of assets to meet expected investor return outcomes.
1As at 31 May 2023.
2Inception date: June 2013.
Annualised Performance (%)
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|Lowest rolling 1 year||
5. Diversification with the fund.
Why are clients wary of credit/corporate debt? Sometimes it’s just as simple as fear of the unknown. Sometimes it may be more to do with concerns over corporate failures, defaults and not getting money back in the event of liquidations etc. Since inception, the Team has voiced the view that ‘diversification is the first line of defence’ and that is the reason behind the very well-diversified composition of the Fund that holds well in excess of 120 names or instruments to mitigate risk and make sure that the strategy is well compensated for the level of risk taken on in the Fund. A few examples of names or instruments currently held in the Fund include Jaguar, FirstRand, JP Morgan, Sasol and Sappi.
6. The Team you want to manage a credit strategy.
Paul Crawford and Louis Antelme have managed the Fund since inception in 2013, but their track record and experience in the industry goes back far further (Paul >25 years and Louis > 30 years). The team has successfully navigated a credit strategy through some very gloomy, difficult times for markets that includes the Global Financial Crises (GFC), the European Sovereign Debt Crises and the Covid-19 crises. Despite these market events, the uncertainty, and the overall level of risk that markets have faced, the Fund continues to deliver high single-digit returns at low levels of risk – with the opportunity of creeping into the double-digit return category from time to time.
7. Long-term, inflation-beating returns.
The Fund has produced a predictable performance and inflation-beating returns over the long term – this means that investors have retained the purchasing power of their investment and have overcome the corrosive inflation effects over time from a conservative risk Fund.
Fund returns disclosed are annualised returns net of investment management fees and performance fees. Annualised return is weighted average compound growth rate over the period measured. The information in this blog page is provided as a general summary only. Past performance is not necessarily a guide for future performance.
This document is confidential and issued for the information of the addressee and clients of Fairtree Asset Management only. It is subject to copyright and may not be reproduced in whole or in part without the written permission of Fairtree Asset Management. The information, opinions and recommendations contained herein are and must be construed solely as statements of opinion and not statements of fact. No warranty, expressed or implied, as to the accuracy, timeliness, completeness, fitness for any particular purpose of any such recommendation or information is given or made by the Manager in any form or manner whatsoever.
Each recommendation or opinion must be weighed solely as one factor in any investment or other decision made by or on behalf of any user of the information contained herein, and such user must accordingly make its own study and evaluation of each strategy/security that it may consider purchasing, holding or selling and should appoint its own investment or financial or other advisers to assist the user in reaching any decision. The Manager will accept no responsibility of whatsoever nature in respect of the use of any statement, opinion, recommendation, or information contained in this document. This document is for information purposes only and does not constitute advice or a solicitation for funds.
Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate.
There is no guarantee in respect of capital or returns in a portfolio. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request. Highest and lowest is returns for any 1 year over the period since inception have been shown. NAV is the net asset value represents the assets of a Fund less its liabilities. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.prescient.co.za.