Fairtree portfolio managers Stephen Brown and Cor Booysen accept the Raging Bull Award from Martin Hesse, content editor of Personal Finance (centre). Photo: Anthea Davison

FAIRTREE EQUITY PRESCIENT FUND

Raging Bull Award for the Best South African Equity General Fund on a Risk-adjusted Basis over five years to December 31, 2019

The Fairtree Equity Prescient Fund was launched in November 2011 and in eight years has accumulated assets of almost R13 billion. According to its November 2019 minimum disclosure document, the fund is almost fully invested in the equity market (98.84%), with almost half (46.69%) in the resources sector.

Last year it returned 19.43%, according to ProfileData, and over five years to the end of 2019, it outperformed all other funds in the large South African general equity category, returning 9.17% a year, on average, and earning it the coveted Raging Bull Award for the second year in a row.

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 your fund's outperformance over 2019?

The fund’s large exposure to the platinum and gold sectors underpinned our outperformance during the year. These sectors had a particularly good year, with the gold index up 108% and the platinum Index returning 203%. There were not many other opportunities on the JSE – some large-caps with offshore consumer exposure had reasonable returns, most notably Naspers, BidCorp, British American Tobacco, Quilter and Richemont. South African consumer-exposed shares had a dismal 2019, with only a few managing to end the year in positive territory. Domestic exposed shares that performed well included Capitec, Pioneer, Clicks and Resilient.  

Were there any particular standouts in your portfolio?

By far the standout performer in the fund’s 2019 performance has to be Impala Platinum, delivering a 290% return during 2019. As a result, it has grown to a 10% position in the fund.

How are you positioning the fund for the year ahead?

We remain constructive on the platinum and gold sectors. Accommodative global monetary policy has resulted in negative real interest rates for most developed economies. This combined with continued geopolitical uncertainty, a strong US dollar and risk of equity markets correcting in the US will be supportive of the gold price. The recovery in the profitability of the platinum producers has been as a result of a 54% and 146%  increase in the price of palladium and rhodium respectively during 2019. This occurred during a year when global auto sales have been particularly poor. We are of the view that we are in the initial stages of this recovery end-users of palladium and rhodium will have no choice but to substitute some of their demand to platinum, which will further improve the profitability of the local platinum miners. The secondary impact of a recovering mining sector should boost the local economy and help support the fiscus. Labour, service providers and government will benefit through increased tax and royalties as well as potential for new investments and additional capex spend. We will keep a close eye for any signs of turnaround and growth in South Africa, which will benefit domestic-facing shares that have derated significantly and could be well positioned for recovery.