Fairtree Flexible Income Plus Fund

Fund Update

Louis Antelme

20 August 2020

Agenda

Business unit

Targets and Objectives

Portfolio Risk

Credit Markets

Performance

Conclusion

Unit AUMUnit manages in excess of R13.8 billion

BCI Income Plus R 8 320 million

Fairtree Flexible Income Plus R 3 350 million

Cisca Fund 3 R 599 million

Cisca Fund 4 R 513 million

Cisca Fund 5 R 357 million

Cisca Fund 6 R 142 million

Cisca Fund 7 R 102 million

Cisca Fund 8 R 90 million

Hedge Fund Product R 418 million

Agenda

Business unit

Targets and Objectives

Portfolio Risk

Credit Markets

Performance

Conclusion

• Target STeFi +3.00% after fees.

• All credit instruments Floating Rate Notes (FRN’s).

• FX risk hedged using futures – Euribor / Libor+ translates to Jibar+

• Interest rate risk (MD) limited to 2 years – currently none.

• Current spread to 3m Jibar around 3.35%

• Low correlation to other asset classes.

Fairtree Flexible Income Plus Fund (R3.35bn)

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Fairtree Flexible Income Plus FundAsset Allocation 31 July 2020

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LOCAL ZAR 76.32% OFFSHORE 23.68%Cash 2.23% EUR 15.39%

Margin Accounts 1.35% Cash 0.61%

Floating Rate Notes Floating Rate Notes

0-1 year 11.32% 1-3 year 2.34%

1-3 year 31.63% 3-7 year 4.09%

3-7 year 29.49%

Fairtree Global IP 8.35%

Fixed Rate Notes

0-1 year 0.30% USD 8.29%

Cash 0.31%

Floating Rate Notes

1-3 year 1.51%

3-7 year 6.47%

Fairtree Flexible Income Plus FundLargest 10 Instruments, Reference entities and Sectors 31 July 2020.

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Agenda

Business unit

Targets and Objectives

Portfolio Risk

Credit Markets

Performance

Conclusion

• Default risk – reality – well diversified (159 instruments).

• FX – no risk – all hedged.

• Currently no Interest Rate risk (MD).

• Liquidity – manageable – WAT 2.77 years, quarterly coupons.

• Spread Widening.

Fairtree Flexible Income PlusRisks

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Agenda

Business unit

Targets and Objectives

Portfolio Risk

Credit Markets

Performance

Conclusion

Spreads – were they too tight?Itraxx Xover Index – 75 European Sub Investment Grade names.

11 Source : Bloomberg 20 August 2015 – 18 August 2020

Spreads – were they too tight?Itraxx Xover Index – 75 European Sub Investment Grade names.

12 Source : Bloomberg 1 January 2003 – 18 August 2020

Global Credit EventsGlobal Credit Event under CDS

13

Source : Markit 2005 – 18 August 2020

• 15 Credit events under CDS.

• 3 Sovereign, 2 European, the rest US HY.

• Wide dispersion of auction recoveries 0.125% to 100%

• Average auction recovery 18.28 cents.

Credit EventsYear to date to 19 August 2020

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Spreads - its all relativeGerman 10 year bonds

15 Source : Bloomberg 1 January 1989- 18 August 2020

Spreads – its all relativeUS 10 year bond yields

16 Source : Bloomberg 1 January 1961– 18 August 2020

SA – just another risky creditRepublic of South Africa 5 year CDS vs Itraxx Crossover CDS Index

17 Source : Bloomberg 31 December 2019 -18 August 2020

SA – just another risky creditRepublic of South Africa 2026 bond spread to 3m Jibar vs Itraxx Crossover Index

18 Source : Bloomberg 31 December 2019 – 18 August 2020

European Credit as an Asset ClassSince March 2007

Source : Bloomberg March 2007 – 31 July 202019

Agenda

Business unit

Targets and Objectives

Portfolio Risk

Credit Markets

Performance

Conclusion

Inception January 2007

Income Plus Mandates : 13.5 Years of Relative Performance (9.44% pa)

Source : Morningstar, Bloomberg Jan 2007 – 31 July 202021

Fairtree IP TOP40TR ALBI STeFI

340.37 334.68 284.65 259.85

Income Plus Mandates : 13.5 Years of Relative PerformanceCalendar year since 1 January 2007

Source : Morningstar, Bloomberg 1 January 2007 – 31 July 202022

Year Income Plus ALBITR TOP40TR STeFi

2007 15.14% 4.25% 18.97% 9.40%

2008 7.30% 16.97% -23.58% 11.70%

2009 8.86% -0.99% 31.73% 9.13%

2010 9.64% 15.01% 17.22% 6.93%

2011 8.29% 8.78% 2.20% 5.71%

2012 9.48% 15.99% 26.12% 5.55%

2013 9.76% 0.64% 22.77% 5.18%

2014 8.09% 10.15% 9.17% 5.90%

2015 10.32% -3.93% 7.52% 6.46%

2016 8.99% 15.45% -1.60% 7.36%

2017 10.43% 10.26% 23.07% 7.52%

2018 9.95% 7.69% -8.31% 7.29%

2019 10.24% 10.32% 12.41% 7.29%

2020 1.97% 0.97% 2.81% 3.62%

Income Plus Mandates : 13.5 Years of Correlation

Inception 1 January 2007

Source : Morningstar, Bloomberg 1 January 2007 – 31 July 202023

INCOME

PLUSTOP40TR ALBITR STeFi

INCOME PLUS 1.00 0.20 -0.04 0.00

TOP40TR 0.09 1.00 0.10 -0.16

ALBITR 1.00 0.01

STeFi 1.00

Mean

Annual

STD

Deviation

Sharpe

Ratio

INCOME PLUS 9.44% 1.97% 1.00

TOP40TR 9.30% 16.56% 0.11

ALBITR 8.01% 7.94% 0.09

STeFi 7.28% 0.49%

Fairtree Flexible Income Plus Fund

Calendar year since 1 January 2015

Source : Morningstar, Bloomberg 1 January 2007 – 31 July 202024

Year

Fairtree

Flexible Income

Plus

ALBITR TOP40TR STeFi

2015 9.90% -3.93% 7.52% 6.46%

2016 11.73% 15.45% -1.60% 7.36%

2017 10.00% 10.26% 23.07% 7.52%

2018 10.36% 7.69% -8.31% 7.29%

2019 9.51% 10.32% 12.41% 7.29%

2020 2.43% 0.97% 2.81% 3.62%

Performance in perspectiveMTD and YTD to 18 August

Source : Bloomberg, internal 3 August 2019 – 18 August 202025

18 August 2020 FAIRTREE

FLEXIBLE TOP40 TR ALBI TR STEFI

Month to Date 0.74% 2.67% 0.48% 0.23%

Year to Date 3.19% 5.55% 1.46% 3.85%

Year on Year 6.65% 13.09% 4.93% 6.58%

Partial attribution YTDBroad based widening of spreads

Source : Bloomberg, internal 31 December 2019 – 18 August 202026

InstrumentAverage

Weight

YTD

Performance

YTD

Contribution

Current Implied

Spread (As marked)

Fairtree Global 6.97% -5.60% -0.39% 340 bps

Sasol 3.46% -7.52% -0.26% 550 bps

AGL03 5.88% -6.34% -0.37% 375 bps

Landbank 1.30% -8.02% -0.10% 470-730 bps

Multi Asset Income Fund rankings1 Year Performance 5.95%

Source : Morningstar 31 July 202027

Multi Asset Income Fund rankings3 Year Performance 8.81%

Source : Morningstar 31 July 202028

Multi Asset Income Fund rankings5 Year Performance 9.85%

Source : Morningstar 31July 202029

Agenda

Business unit

Targets and Objectives

Portfolio Risk

Credit Markets

Performance

Conclusion

Stable Alpha generation over an extended period

Volatility is to be expected in all risk markets from time to time

Current volatility has not changed the investment thesis or process.

Thank you

Fairtree ALBI Plus Fund

Fund Update

Dane Merrick

20 August 2020

Agenda

Fund Overview and Objectives

Performance

Conclusion

• Benchmarked against the South African All Bond Index (ALBI), with a return target of ALBI plus 1% after fees

• Managed by Paul Crawford and Dane Merrick

• Launched in April 2017 – a 3-year track record in place (AUM >R90m)

• A team-based, quantitative approach combined with cutting-edge portfolio construction techniques in order to reach stated return outcomes

• SA Interest Bearing Variable Term fund category

• Regulation 28 compliant

Fairtree ALBI Plus Fund

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• ALBI was established in 2001 and is widely understood, transparent, investable, liquid and an acceptable representation of the market

• ALBI Plus Fund is focused on replicating ALBI interest rate risk while searching for opportunities to add value through diversified credit exposure

• A novel mandate for the Fairtree Fixed Income Team - combining the risk/return characteristics of traditional government bonds (ALBI) with credit

• In-house replication technology and opportunity for alpha transport of excess return

• Returned 11.4% for the 2019 calendar year (best in its category) and has returned roughly 7% pa since inception

Fairtree ALBI Plus Fund

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Agenda

Fund Overview and Objectives

Performance

Conclusion

Fairtree ALBI Plus Fund - track record

Source: Morningstar38

3 Year annualised return to 30 June 2020 – net of all fees

• Fairtree ALBI Plus Fund

• Peer Group Mean

Performance – Inception to July 2020

Source: Morningstar, Bloomberg7

Modern replication period – Sep 2018 to present

Source: Morningstar, Bloomberg8

Agenda

Fund Overview and Objectives

Performance

Conclusion

Historic alpha production for Income Plus has been stable and uncorrelated to other asset classes

Combining traditional government bonds (duration) with opportunity to transport excess returns from credit

Managed by a well qualified, well established team with a verifiable long-term track record

Thank you

Collective Investment Schemes are generally medium to long-term investments. Please

note that past performance is no guarantee of future performance and that the value of

participatory interests may go down as well as up. Collective investments are traded at

ruling prices and can engage in scrip lending and borrowing. A Collective Investment

Scheme may be closed to new investors in order for it to be managed more efficiently in

accordance with its mandate. The Manager does not provide any guarantee with respect

to the capital or the return of the portfolio. Excessive withdrawals from the portfolio may

place the portfolio under liquidity pressure and in such circumstances, a process of ring-

fencing of withdrawal instructions and managed pay-outs over time may be followed.

Commission and incentives may be paid, and if so, are included in the overall costs.

Investors should note that the value of an investment is dependent on numerous factors

which may include, but not limited to, share price fluctuations, interest and exchange

rates and other economic factors. Performance is further affected by uncertainties such

as changes in government policy, taxation and other legal or regulatory developments.

The performance of the portfolio is dependent on the making of correct assessments of

the price movements of individual securities and other investments. Financial markets

have historically exhibited high levels of volatility and negative movements that have

affected the price of all assets within a specific class. The portfolio’s investments will

thus be subject to market risk. Through financial gearing via the long/short process, the

portfolio may be leveraged. This will mean enhanced positive gains but conversely can

mean magnified losses. No taxation has been deducted in the computation of returns.

The taxation treatment of returns is the investor’s responsibility.

All returns are disclosed net of performance fees.

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A schedule of fees, charges and maximum commissions, as well as a detailed description

on how performance fees are calculated and applied, is available on request from the

manager of each fund (“the Manager”), being either Sanne Management Company (RF)

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This information is not intended to provide advice to, or take into account individual

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Disclaimer

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