Stephen Brown. Supplied
Stephen Brown. Supplied

Fairtree gets stock selection right again and again

By Martin Hesse Time of article published Feb 11, 2021

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FAIRTREE EQUITY PRESCIENT FUND

  • Raging Bull Award for the Best South African Equity General Fund (for straight performance over three years to December 31, 2020)
  • Raging Bull Award for the Best South African General Equity Fund on a Risk-adjusted Basis (for performance over five years to December 31, 2020)

For the past four years, the Fairtree Equity Prescient Fund has dominated the awards in the domestic general equity categories.

At the end of last year, over three and five years, the periods under assessment, the fund delivered 10.47% a year and 11.74% a year respectively, against the mediocre performance of the JSE, whose All Share Total Return Index delivered 3.12% and 6.36% a year over those periods.

The fund is one of several funds in the Prescient white-label stable offered by boutique asset manager Fairtree, based in Bellville in the Western Cape. It has traditionally been managed by Cor Booysen and Stephen Brown, but last year Chantelle Baptiste joined them on the equity investment team.

At the end of 2020, resources stocks made up almost 52% of the fund’s portfolio, and shares in the consumer discretionary sector accounted for another 25%.

Personal Finance put the following questions to Booysen and Brown:

Please outline your company’s investment philosophy/strategy in relation to this fund.

The Fairtree Equity Prescient Fund is an actively managed domestic general equity fund with a focus on maximising total returns for the client and offers medium- to long-term capital growth.

The fund, currently with assets under management of R16.4 billion, uses as its benchmark the FTSE/JSE Capped Shareholder Weighted All Share Total Return Index.

Our philosophy is based on three principles, which we believe lead to better portfolio returns:

1. Holistic. Due to the externalised nature of the South African equity market, we believe that both top-down analysis and bottom-up analysis are required to make sound investment decisions.

2. 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.

3. Flexible. We believe in having the willingness and ability to change our portfolio when the environment changes, adapting quickly to changes in economic conditions that affect the earnings outlook of companies.

To what do you attribute your fund’s outperformance in 2020?

Four sectors on the JSE had standout performances during 2020. These were gold miners, platinum group metal (PGM) miners, diversified miners and Naspers/Prosus. We were fortunate to start 2020 with a large exposure to these four sectors.

The fund invests in a number of focused strategies. Among these, we were overweight in cyclical (diversified mining, platinum), defensive (gold mining) and value (property, local consumer discretionary, financials, industrials), which all supported our fund’s performance.

Were there any particular standouts in your portfolio?

The fund’s performance was enhanced by positions in Impala, Northam and African Rainbow Minerals.

How are you positioning the fund for the year ahead?

We continue to have large positions in gold, PGM and diversified mining, as well as Naspers, but have increased our positions in shares exposed to the South African economy (SA Inc).

Over the longer term, we are expecting further dollar weakness given a continued global recovery and rotation in cyclicals and emerging markets. This has been informing our view to tilt the portfolio into the SA Inc-facing counters. We believe South Africa is cyclically well positioned for a global recovery, with a moderately undervalued currency, attractively priced bonds and a cheap equity market.

Structurally, South Africa has problems, but we have begun a path of reform that is being championed at the highest level. We will watch for key economic reform, which would be demonstrated by public sector wage discipline and allowing for more private sector intervention in failed state-owned enterprises.

PERSONAL FINANCE

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