Fairtree Balanced Prescient Fund Q3 2025 commentary

*Net of fees
Source: Prescient, 30 September 2025. Fund inception: January 2017
Benchmark: SA – Multi Asset – High Equity Category Average

The thematic trade continues

The Fund returned 8.70% over Q3 2025 and 19.51% year to date. The Fund outperformed its peer group over the quarter and remained within the top decile year to date.

Over three- and five-year periods, the Fund continues to be ranked within the top 10% of its peer group and first over the seven-year period. The Fund aims to provide investors with significant positive real returns and has outperformed inflation by 5% or more over the last 12 months, three years, five years, seven years and since inception.

We expect macroeconomic uncertainty to persist through 2025. Geopolitical tensions and shifting trade dynamics are keeping global investors cautious. In the US, tariffs, growing concerns around Fed independence, sticky inflation and weaker labour market dynamics have tempered sentiment, reinforcing a more defensive positioning. Europe appears somewhat more resilient, supported by fiscal initiatives and less restrictive monetary policy, with inflation back at the 2% target. Meanwhile, in emerging markets such as China, the scope for easier domestic policy measures, a softer US dollar, lower energy costs, and innovation in key industries are helping to stabilise conditions, though global risks remain an overhang.

Domestically, growth expectations have fallen despite marked improvements in energy and logistics networks. Rising export commodity prices (platinum & gold) combined with low and falling import commodity prices (oil) should provide a welcome term of trade boost to the economy in the form of increased consumption and government revenues. We remain optimistic about fiscal policy and the longevity of the Government of National Unity (GNU). Given low inflation and the South African Reserve Bank’s (SARB’s) announcement to target 3% inflation, South Africa could see a series of rate cuts over the coming 24 months that would benefit the economy. A possible US-SA trade deal remains on the cards.

Our portfolio is diversified, highly liquid, and built to navigate a range of macro scenarios. We maintain a defensive allocation in developed markets and a more opportunistic view in emerging markets. We are overweight in government bonds globally and locally, while holding an underweight in equities, particularly in the US. We continue to favour domestic assets. The portfolio is structured to withstand slowing growth, geopolitical uncertainty, and persistent inflation pressures. We are neutral on cash, pending clearer signs of a broader global slowdown. While overall positioned defensively, we hold targeted positions that stand to benefit from improving conditions in China and South Africa.

In this environment, active management and adaptability remain essential. Our strategy is anchored in robust top-down macro insights, supported by disciplined bottom-up research.

Macro overview

The third quarter was marked by resilient growth, softer inflation trajectories in key economies, and a decisive shift in the global monetary cycle as the Fed restarted its easing cycle. Tariff risks were moderated, though not eliminated, while fiscal sustainability questions in Europe and the UK lingered. For South Africa and other emerging markets, the alignment of high real yields, easing global financial conditions and supportive commodity prices provided a rare window of opportunity to consolidate stability despite ongoing external risks. Global growth dynamics showed resilience despite geopolitical headwinds. Fears that tariffs would choke off trade proved less severe than initially expected, particularly after the US secured new agreements with the EU and Japan that settled on a 15% tariff rate rather than the higher levels once threatened.

Sentiment towards China improved somewhat following direct trade talks and a temporary truce in tariff escalation. The easing of external risks, coupled with firm domestic consumption in major economies, helped underpin a more constructive outlook. Technology investment remained a tailwind, especially in Asia, where renewed policy support for semiconductors and digital infrastructure helped to stabilise broader economic conditions.

In the US, macro data continued to surprise to the upside. GDP growth for Q2 was revised significantly higher (3.8% from 3.3%), reflecting stronger consumer spending and business investment. Household demand proved resilient despite tariff-related uncertainties. Inflation remained sticky as tariff pass-through continued, but was less disruptive than anticipated. This allowed the Federal Reserve to cut the policy rate by 25 basis points in September, its first reduction this year, while signalling more to come. Markets quickly priced in a further series of cuts, driving Treasury yields lower, equities higher and the dollar to its weakest point since early 2022. Nevertheless, political risks persisted, with uncertainty around the president’s authority to impose tariffs and the onset of a government shutdown on October 1 raised concerns about delays to critical economic data releases.

Europe presented a more mixed picture. Germany contracted in Q2, renewing growth concerns, while weakness in its auto sector added to the drag. France faced renewed political instability with yet another change in prime minister, complicating the path toward fiscal consolidation. At the same time, PMI readings in September pointed to a rebound in activity, suggesting some stabilisation heading into Q4. The European Central Bank paused its easing cycle after seven consecutive rate cuts, holding its policy rate at 2% as inflation pressures appeared contained. However, fiscal worries, particularly in France and southern Europe, kept long-dated yields under pressure, even as the growth picture began to improve.

China remained the key source of divergence between markets and the economy. Manufacturing continued to contract, property sector strains deepened, and consumer demand stayed subdued. Inflation was flat, with producer prices still in deflation. Yet investor sentiment improved, driven by policy support for high-tech sectors and Beijing’s commitment to industrial upgrading. Externally, a temporary extension of the tariff truce with the US helped calm near-term risks, allowing capital to flow back into Chinese assets. Bond yields moved higher as investors rotated into equities, but the structural challenges of weak domestic demand and deflationary pressures remained unresolved.

In the UK, the macro narrative was shaped by fiscal challenges. GDP growth stalled in July, highlighting the fragility of the domestic economy. Borrowing costs continued to rise, adding strain to public finances. Expectations are mounting that the November budget will deliver tax increases, possibly through property-related levies or adjustments to inheritance and council taxes. The Bank of England has maintained a cautious stance, balancing the need to support growth with risks tied to fiscal sustainability. While the external-facing large-cap stocks benefitted from a softer dollar and global tailwinds, the domestic picture remained one of weak consumption and fragile momentum.

Commodities were mixed over the quarter. Oil prices drifted lower as OPEC+ supply increases met softer demand expectations. Industrial metals like copper rose, partly on supply disruption risks and merger activity that reshaped the global copper sector. Gold stood out as the quarter’s defining asset, surging to fresh records amid rising central-bank purchases, renewed ETF demand, and persistent inflation concerns. Its strength fed directly into South Africa’s improving terms of trade, boosting confidence in both the currency and fiscal outlook.

South Africa benefitted from a confluence of domestic and global factors in Q3. GDP expanded by 0.8% in Q2, the strongest quarterly growth in two years and well above expectations. Inflation eased, with headline CPI declining to 3.3% in August, though core inflation edged higher to 3.1%, reflecting underlying demand pressures. The SARB kept its repo rate steady at 7% in September after delivering a 25bps cut in July, balancing support for growth with its inflation-targeting mandate. Importantly, foreign appetite for local bonds accelerated, as global investors sought out high real yields in a stable macro environment. The rand strengthened significantly, supported by dollar weakness and record-high gold prices. Trade policy remained a watchpoint, with South Africa continuing negotiations over higher US tariffs, even as tentative support for an extension of the African Growth and Opportunity Act offered some relief for exporters.

Market review

Global equities rose 7.3%, outperforming ex-US equities, which gained 6.9%. US equities rose 8%, mostly led by the strong performance of the large consumer technology stocks. The equally weighted S&P 500 was up 5.2% over the quarter, showing how concentrated the US equity rally was. Europe was up 3.5% and emerging markets were up 10.6%. Within emerging markets, China returned 20.7% and South Africa returned 20.4%.

SA equities (Capped SWIX) were up 12.8% over the quarter. SA resources were the best-performing sector, up 50% and predominantly driven by gold and platinum stocks. SA property was up 12.8%. The rand appreciated around 2.6% over the quarter against the US dollar.

During the quarter, the South African All Bond Index rose 6.9% and cash returned 1.8%. The Bloomberg Barclays Global Aggregate Bond Index gained 0.8% over the quarter.

Commodities were strong in general, with Palladium (14%), Gold (16.8%) and Platinum (15.9%) the strongest performers.

The US dollar strengthened by 1% against the major currencies as policy uncertainty slightly eased with growth data looking robust.

Portfolio performance

The Fund returned 8.70% over Q3 2025 and 19.51% year to date. The Fund outperformed its peer group over the quarter and remained within the top decile year to date. This outperformance was primarily driven by the positive contribution from asset allocation, offsetting the slight negative contribution from security selection.

Our security selection within SA Equity detracted from excess returns, while security selection within Commodities, Global Equity, Emerging Equity and SA Property contributed to excess returns.

The SA Equity component underperformed the FTSE/JSE Capped Shareholder Weighted (Capped SWIX) Index by 25 bps. The Resource sector was the key performance contributor during Q3, with performance positively impacted by positions in Gold Fields (77%), AngloGold (54%), Prosus (22%), Northam Platinum (48%) and Impala (40%). Positions in Truworths (-21%), Sanlam (-6%), Nedbank (-8%), Foschini (-14%), and Reinet (-11%) detracted from performance

Within Global Equity, overweight exposures to Consumer Discretionary added to performance with names such as Google and Alibaba. While being underweight, communication services slightly detracted from performance.

Within Commodities, our overweight to Gold and Platinum contributed to excess returns.

Within asset allocation, our decisions to be overweight in SA Equity and Emerging Market Equity, and underweight in Global Equity, worked in our favour. Our overweight in Commodities also contributed, while being overweight in US Treasuries detracted.

Portfolio positioning

In this environment of shifting and often unpredictable policy dynamics, we continue to prioritise diversification, flexibility and liquidity. The portfolio is structured not only across asset classes, sectors and individual stocks, but also across a range of potential economic scenarios. With the probability of tail risks rising, maintaining the ability to adjust positioning swiftly has become increasingly important.

Our portfolio has both defensive and opportunistic characteristics. We are defensively positioned for a slowdown in the US, where valuations are higher and the central bank is constrained by sticky inflation, while opportunistically positioned to take advantage of a recovery in emerging markets, including China and South Africa, where valuations are more attractive and central banks have more scope to ease policy. The overall macro environment, however, may continue to swing between a state of decent growth & sticky inflation and a state of labour market concerns & continued disinflation.

We therefore remain overweight SA Equities and Emerging Market Equities and underweight Global Equities. We are neutral on SA Property and remain overweight SA Bonds as the outlook for lower funding cost improved along with better fiscal dynamics and increased foreign participation. We remain underweight in Global Property. We remain overweight Global Fixed Income (US Treasuries), as these positions stand to benefit from a US economic slowdown. We are overweight Commodities, particularly gold and platinum, as they continue to benefit from rising geopolitical tensions and thematic shifts.