Raging Bull Award for the Best South African Equity General Fund on a Risk-adjusted Basis over five years to December 31, 2018
The Fairtree Equity Prescient Fund was launched in November 2011 and in seven years has accumulated assets of more than R10 billion.
It is the top-performing fund over five years to December 31, 2018 in the large general equity category. Despite a loss of 5.77% in 2018, it has managed to return an average of 8.94% a year over the five-year period, which is over three percentage points more than the FTSE/JSE All Share Total Return Index, which returned 5.77% a year, on average (according to ProfileData). Over seven years it is also the top performer, averaging a return of 13.77% a year.
The fund is managed by Stephen Brown and Cor Booysen. Personal Finance asked them about their investment approach.
Please outline your company's investment philosophy/strategy in relation to this fund.
Our philosophy is based on three principles, which we believe lead to better portfolio returns:
Holistic. Due to the externalised nature of the South African equity market, we believe that both top-down and bottom-up analysis are required to make sound investment decisions.
Diversified. We believe it is better to own a well-diversified portfolio that is positioned to perform under most outcomes than to concentrate on a few positions that will do well during a single economic outcome.
Flexibility. We believe in having the willingness and ability to change our portfolio when the environment changes, adapting quickly to changes in the economic conditions that affect the earnings outlook of companies.
To what do you attribute the fund's outperformance in 2018?
2018 was a year with few companies posting positive returns, while many blue chip, large-cap companies posted deep negative returns. The fund managed to outperform the benchmark by having significant exposure to diversified mining and gold shares, and was fortunate to have significant underweight positions in companies that performed poorly. These include MTN, British American Tobacco, Remgro, Mediclinic, Aspen and Tiger Brands.
Were there any particular stand-outs in the portfolio?
Capitec contributed positively to performance since its February collapse following the Viceroy report, when we used the opportunity to add to our exposure. Mondi also added to performance, as we managed to take profits at significantly higher price levels than where it ended the year.
How are you positioning your fund for the year ahead?
We are of the view that the global economic growth will be lower in 2019 than in 2018 but with little risk of a recession. We believe that new trade tariffs between the US and China will be amicably agreed and we will see certainty around Brexit. We remain constructive on resources given attractive valuations.
The South African economy requires significant government policy support and business and consumer confidence to return to generate the growth that is desperately needed. Some tough decisions will have to be made by government to ensure that SOEs like Eskom and SAA do not jeopardise SAs recovery.
The fund invests in a number of focused strategies. Among these we continue to favour earnings growth counters, which include Naspers, PSG, Mr Price and Capitec; cyclical counters, which include South32, BHP Billiton, Anglo American, ARM, Sappi and Mondi; and value counters. We believe the fund is well positioned for 2019, with holdings at very attractive valuation levels compared with recent years.