Fairtree Balanced Prescient Fund Q4 2025 commentary

*Net of fees  

Source: Prescient, 31 December 2025. Fund inception: January 2017

Benchmark: SA – Multi Asset – High Equity Category Average

Benefitting From Non – US Exceptionalism

The Fund returned 5.30% over Q4 2025 and 25.79% over 2025. The Fund outperformed its peer group over the quarter and over the calendar year and ranks within the top 5% of the ASISA High Equity peer group for the 2025 calendar year.

Overall, market returns were strong in 2025. South African bond and equity markets recorded exceptional returns. The global equity market also performed well despite high interest rates, policy uncertainty, and geopolitical tensions. We benefited from being more defensively positioned in developed markets, while taking a more opportunistic stance in emerging markets and South Africa. We also benefited from selective exposures towards precious metals, emerging market technology, global consumers, and local interest rates.

We continue to favour South Africa and emerging markets relative to developed markets. Our core macro views of lower inflation, ongoing policy accommodation, and stable growth should support equity markets and other risk assets. High valuations in the US, paired with geopolitical and political uncertainty, keep us more cautious. We remain overweight in government bonds, but in a smaller size.

Our investment process remains in place, and we are well-equipped to navigate current market conditions. Our approach remains holistic and leans on a strong top-down macro analysis to complement our bottom-up security selection work. Within our portfolios, we continue to focus on flexibility, liquidity, and diversification.

Macro overview

Global central banks continued to cut rates over the fourth quarter. The European Central Bank (ECB) signalled that it could be done with cutting rates, while the Bank of England may still need to cut a few more times. The US Federal Reserve (Fed) is gaining scope to cut rates, but a surprisingly robust economic backdrop, lack of economic data, and pro-cyclical fiscal policy stance have kept the Fed cautious.

Against this backdrop, global equities delivered positive returns over the quarter, led by emerging markets, while global bond returns remained modest. Oil prices and Chinese equities were notable laggards, as energy markets faced oversupply concerns. Meanwhile, China continued to contend with uneven domestic growth despite policy support.

As the quarter progressed, US inflation and labour data softened more convincingly, prompting central banks to adopt a less hawkish tone. The Federal Reserve delivered its third rate cut of the year in December, reinforcing expectations of a soft landing and triggering a repricing across asset classes. Bond yields declined from earlier highs, the US dollar weakened into year-end, and financial conditions eased materially, supporting a broad-based rally in risk assets. Oil prices fell further amid weaker demand expectations, record US production, and doubts around OPEC+ supply discipline, while improved US–China engagement and greater flexibility around tariff implementation helped stabilise sentiment and underpin the late-quarter recovery.

As we step into 2026, markets face a pivotal juncture as the global policy cycle approaches a turning point. Central banks in core economies have delivered substantial rate cuts over 2025, and while the easing cycle is nearing its end, volatility will likely be driven by future monetary policy expectations, geopolitics, and politics.

The key macro trends shaping markets this year include:

1. Fading tailwinds of easy money, with disinflation continuing alongside slower global growth, creating a more selective and differentiated investment environment.
2. Central banks transitioning to a more neutral policy stance, while navigating the risks of premature tightening or delayed but deeper rate adjustments.
3. Uneven growth dynamics, with US K-shaped patterns, European recovery still fragile, and China reflation efforts partially offsetting weakness elsewhere.
4. Political uncertainty stemming from upcoming US midterm elections and shifting geopolitical dynamics may create unintended consequences that could impact commodities and the US dollar.

The US economy remains defined by K-shaped dynamics. Nominal growth has been resilient, supported by AI-driven capital expenditure and robust consumption towards the year-end. Labour markets have loosened and show pockets of weakness, particularly among lower-income households. Inflationary pressures are easing as shelter costs decline and wage growth slows. The Federal Reserve is expected to cut rates gradually, with scope for deeper cuts if disinflation persists. Fiscal support will largely favour higher-income groups, while equity leadership is likely to broaden from high-growth tech towards cyclical and value sectors.

The European economy remains exposed to weak global manufacturing, with growth recovering slowly. Policy support from the ECB is largely in place, with limited upside from rates alone. Inflation is contained, and real incomes are improving, though structural challenges persist, including energy costs and manufacturing competitiveness from China. Fiscal initiatives, particularly in defence and infrastructure, offer upside potential, with investor focus on countries with stronger fiscal flexibility and reform momentum.

China continues to grapple with post-regulatory adjustment effects, particularly in the property and consumer sectors. Policy measures aimed at boosting demand through subsidies, income support, and infrastructure investment are expected to continue, with monetary easing likely contingent on global growth conditions. Export strength, particularly to emerging markets and Asia, should offset domestic weakness, while housing stabilisation remains the key catalyst for confidence. Overall, China is expected to meet official growth targets around 5%, driven by manufacturing and exports, with consumption slowly gaining traction. Selectivity remains critical for investors.

South Africa’s macro outlook is improving amid ongoing reforms. The formal reduction of the inflation target to 3% ±1% allows the South African Reserve Bank (SARB) to continue easing rates towards a neutral level of 5.5–6%. Lower borrowing costs, improving credit penetration, and rising consumer confidence support domestic growth. Fixed investment shows tentative recovery, supported by both public and private sector spending. Equity leadership is expected to broaden from precious metals and dual-listed technology companies to diversified miners, retailers, and domestic-facing banks. Key risks include municipal elections, political instability, and foreign policy missteps, though fiscal consolidation and sovereign rating upgrades provide structural support.

Oil prices are expected to stabilise around US$60, supported by supply growth from non-OPEC producers and ample OPEC spare capacity. Geopolitical risks, including Iran and Venezuela, present upside risks. Gold and other precious metals remain well-supported by central bank demand, geopolitical uncertainty, and fiscal expansion, with potential for moderate price increases. Industrial metals benefit from defence spending, AI infrastructure investment, and a potential recovery in China’s housing market, providing upside for copper, iron ore, and other strategic commodities.

The geopolitical landscape remains fragmented, with heightened tensions between the West and the Global South. Strategic rivalry between the US and China is ongoing, with Taiwan as a potential flashpoint. Middle East instability, including Iran and Israel-Hamas dynamics, continues to pose risks to supply chains and growth. Russia-Ukraine tensions persist, affecting commodity markets and investment flows. Smaller, open economies, including South Africa, must navigate this divided landscape, balancing foreign policy priorities with economic imperatives. Gold and alternative assets remain key hedges against geopolitical risk.

Macro review

Global equities rose during the quarter, with the MSCI All Country World Index up 3.3% in US dollar terms, rounding off a strong year with a 22% gain. Emerging markets outperformed, rising 4.7% for the quarter and 33.6% for the year, driven by strength in South Africa, Brazil, Mexico, Taiwan, and China. Developed markets gained 3.1% over the quarter and 21.1% over the year, led by Europe, the UK, and Japan, while the US lagged, with the S&P 500 up 2.7% for the quarter and 17.9% for the year. Although leadership remained concentrated in communication services and technology, market breadth improved, with several cyclical and defensive sectors posting double-digit gains over the year.

SA equities (FTSE/JSE All Share Index) rose 8.1% over the quarter and delivered an exceptional 42.4% return for the year in rand terms. Financials and Resources led quarterly gains, up 18.9% and 10.3%, respectively, while Industrials lagged. Listed property continued its recovery, rising 16.7% over the quarter and 30.5% over the year, supported by balance-sheet repair and improving funding conditions. Resources were the standout sector for the year, surging 144% as precious metals rallied sharply, driving extraordinary returns for gold and platinum miners. The improved local backdrop for the quarter was reinforced by contained inflation, a 25bps rate cut from the SARB, a sovereign credit rating upgrade from S&P, and South Africa’s exit from the FATF grey list, all of which helped support investor confidence and capital inflows.

Fixed income markets delivered solid outcomes. Global bonds, as measured by the Bloomberg Global Aggregate Bond Index, rose 0.2% over the quarter and 8.2% over the year as yields remained range-bound and central banks pivoted towards easier policy. In South Africa, bonds rallied strongly, with the All Bond Index up 9% for the quarter and 24.2% for the year, supported by easing inflation, a flatter yield curve, and improved fiscal credibility. Inflation-linked bonds returned 8.1% over the quarter. The bond rally was further underpinned by the SARB’s endorsement of a lower inflation target and strong demand for long-dated government and infrastructure issuance.

Commodities delivered standout performance, led decisively by precious and industrial metals. Over the quarter, silver, platinum, palladium, copper, and gold posted strong double-digit gains, while for the year, silver rose 150%, platinum 120%, palladium 69%, and gold 65%. These gains were driven by geopolitical uncertainty, expectations of US rate cuts, robust central bank buying, and strong demand linked to electrification, renewable energy, and AI-related infrastructure. Copper reached record highs amid supply constraints and rising global demand. In contrast, energy markets underperformed, with Brent crude falling 9.2% over the quarter and 17.6% over the year, weighed down by oversupply and softer demand growth as global economic momentum moderated

Portfolio Performance

The fund returned 5.3% over Q4-2025 and 25.8% over 2025. The fund outperformed its peer group over the quarter and over the calendar year and ranks within the top 5% of the ASISA High Equity peer group for the 2025 calendar year.

The Fund marginally underperformed relative to its internal index over the quarter, as well as during the year, as security selection detracted from returns. Asset allocation, however, contributed to returns and largely offset the drag from security selection.

Security selection within SA Equity and Global Property was the key detractor in 2025, while Global Equity, Emerging Markets Equity, and SA Property security selection offset some of the detraction. Asset allocation decisions contributed strongly to overall returns as our decision to overweight SA Equity and Emerging Markets Equity relative to an underweight in Global Equity worked well. Our overweight exposure to Commodities also contributed.

It was a similar story over the fourth quarter, with equity security selection detracting, but asset allocation, particularly overweighting SA asset classes relative to global asset classes, contributed to returns. SA Equity returned 8.8% during the quarter, underperforming the FTSE/JSE Capped Shareholder Weighted Index (Capped SWIX) by 70bps. The Resource sector was the key performance contributor during Q4. Names that had a positive impact were Impala (18.79%), FirstRand (20.55%), AngloGold (19.36%), Northam Platinum (19.97%), and Standard Bank (22.85%). Positions in Naspers (-11.28%), Prosus (-15.18%), Mr Price (-12.57%), Foschini (-21.86%), and WeBuyCars (-13.09%) detracted from performance.

Within Global Equity, Financials, Health Care and Information Technology sectors were the best-performing sectors over the quarter. Real Estate and Consumer Discretionary were the worst-performing sectors over the quarter. Stock picking in the Communication Services, Materials, and Information Technology sectors added to relative performance, while stock picking in Financials, Health Care, and Consumer Discretionary sectors detracted from relative performance.

Within SA Bonds, our overweight position in the belly and backend of the yield curve contributed to performance that was in line with the index.

Portfolio positioning

We are relatively upbeat about markets, although we still see scope for emerging markets and local markets to outperform developed markets. We see global monetary easing coming to an end in 2026 and remain defensively positioned across developed markets for an environment of heightened policy uncertainty and slower labour market dynamics.

We remain light on cash as we see opportunities in emerging markets, China, and South Africa with depressed valuations and improving macro factors. We are overweight in SA Equity and SA Property, underweight in Global Equity, with an overweight towards Emerging Markets. We remain neutral to slightly overweight in both SA and Global Fixed Income and are overweight in Commodities, particularly gold and PGMs. We are neutral to underweight both local and US Cash.

Within SA Equity, we remain constructive on gold and have continued to build exposure to platinum. Given its relatively small physical market, platinum appears increasingly well-positioned to benefit from incremental investment flows, a dynamic that could extend into 2026. We have added exposure towards SA Inc with attractive valuations. We are overweight SA Property as we see lower inflation, rate cuts, and improving consumer wallets.

We remain underweight Global Equity, with our exposure split between emerging (overweight) and developed (underweight) markets. Valuations and earnings projections in the US remain elevated. Valuations outside the US and across emerging markets are more attractive relative to history. Global Equity is positioned with an underweight in cyclical names, in favour of technology exposure. From a geographical perspective, the fund remains underweight in the US and Canada, while being overweight in Kazakhstan and South Africa.

We continue to maintain our overweight exposure to physical commodities, favouring gold and platinum.

We are neutral to slightly overweight in SA Fixed Income, given that SA Bonds performed strongly during 2025. We believe that SA Bonds can do more, but yields are more expensive now. We believe the SARB can cut more than what the market is pricing in and that fiscal metrics will improve faster than anticipated.