Why this fund manager is now blending local and offshore

Fairtree is launching a new blended equity fund that incorporates local and global exposure into a single portfolio.

The existing Fairtree Equity Prescient fund, which has limited itself to only investing in the JSE, has been a top-performing strategy for over a decade. More recently, the Fairtree Global Equity Prescient feeder fund has built up an excellent track record since launching in January 2017. Over the past five years to the end of October 2023 it has returned 14% per annum, (after all fees) outperforming the 12.65% generated by the MSCI All World Country Total Return index in rand.

‘In those standalone funds, we are the only investment manager who has delivered alpha both on the local and offshore side over the past five years,’ said Cornelius Zeeman, a portfolio manager at Fairtree in a media release.

‘We think there is a real need in the market for allocators to have a choice like ours, where you can have the local and offshore building blocks in one.’

There is no good reason why local managers should be at a disadvantage when picking stocks in global markets, Citywire A-rated Zeeman added.

According to Fairtree, there is a trend among local investors to split the asset managers they use for their local and offshore equity exposure. More allocators are moving to pure South African equity funds and using international managers for the global portion, it said.

Offshore holdings failing to deliver.

 

‘Largely, this is because most South African equity managers have struggled to deliver compelling returns from their offshore holdings,’ the release stated.  However, Zeeman believes that by splitting the managers they use, investors are potentially creating a different kind of drag on performance.

‘It helps for a single manager to have visibility on both, because then they can have a coherent strategy. If SA Inc. shares rally 10% in a week, for example, the manager can quickly take profits on that. You don’t need to have another layer of decision-making where a call must be made to re-allocate, and it takes time for that instruction to go through,’ he said

‘There is a big advantage of having everything with one manager, with the ability to be nimble in both asset allocation and security selection. You can harvest more alpha that way.’

When using different managers, Zeeman added that there is also the risk of doubling up on investment themes or missing certain themes completely.

Zeeman also believes that there are also efficiencies to having one manager picking stocks both locally and offshore.

‘There are three areas where you can add alpha: being over or underweight in your allocation to local or offshore stocks; beating the relative benchmarks in each of those components through stock selection; and replacing like-for-like companies with better prospects.’

The Fairtree Blended Equity Prescient fund will be co-managed by Zeeman, who manages the Fairtree Global Equity Prescient Feeder fund, and Cor Booysen (pictured above), manager of the Fairtree Equity Prescient fund. They will be assisted by Chantelle Baptiste and Jacques Haasbroek.

The fund will aim to hold between 60 and 90 companies.

‘The global fund has roughly 100 positions and the South African fund about 60 positions, so it will be a more concentrated version of both,’ Zeeman said.

‘You don’t need the same diversification in both components because you already get diversification by putting them together.’

By Ruan Jooste, Citywire South Africa

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