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)
5
Fairtree Flexible Income Plus FundAsset Allocation 31 July 2020
6
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.
7
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
9
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
14
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
35
• 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
36
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.
Fairtree Asset Management (Pty) Ltd is registered as a financial services provider with the
Financial Services Board of South Africa, with registration number 2004/033269/07 and
FSP number 25917.
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)
(Pty) Ltd, MET Collective Investments (RF) (Pty) Ltd, Nautilus Managed Account Platform
(RF) (Pty) Ltd, Prescient Management Company (RF) (Pty) Ltd or Boutique Collective
Investments (RF) (Pty) Ltd, all being registered and approved managers of Collective
Investment Schemes. The name of the fund shall reflect the name of the approved
manager of the fund. Additional information, including key investor information
documents, minimum disclosure documents as well as other information relating to the
portfolio is available, free of charge, on request from the Manager.
The Manager retains full legal responsibility for any co-named portfolio and is responsible
for the appointment of a trustee in accordance with the provisions of the Collective
Investment Schemes Control Act, 45 of 2002
We believe the information displayed is accurate and reliable, but no warranty of accuracy
or reliability is given and no responsibility arising in any way for errors and omissions
(including by way of negligence) is accepted by Fairtree Asset Management (Pty) Ltd.
This information is not intended to provide advice to, or take into account individual
investors’ objectives or circumstances. This material should not be construed to represent
a solicitation to invest in the portfolio and is disclosed for reporting purposes only.
Disclaimer
44