Fairtree Global Equity Fund Q1 2025 Commentary

21 May 2025, 05:57 Cornelius Zeeman

min read Guides

The fund returned 1.49% for the quarter, outperforming the benchmark by 2.81%. Global markets saw a sharp downturn in March as US tariffs continued to weigh on investor sentiment, with the U.S. declining 5.9% over the month. The MSCI Emerging Markets Index increased by 2.9%. China and Brazil posted strong returns, increasing 15% and 14% respectively (all in USD).

U.S. equities ended the quarter 4.6% lower, pressured by escalating tariff announcements and policy uncertainty out of Washington. March was marked by rapid policy shifts from President Trump, with tariffs, inflation, employment, and consumer spending driving market concerns. Sentiment weakened further amid rising layoffs, retail warnings, and government job cuts. The Fed left interest rates unchanged at 4.25% – 4.50% during its March meeting due to increased economic uncertainty. They also lowered the GDP growth forecast to 1.7% from 2.1% for 2025, indicating more moderate economic activity than anticipated, while the unemployment rate increased slightly to 4.2%. Shares of AI-related US companies experienced pronounced volatility over the quarter following the release of Deepseek, a Large Language model from China that was trained at significantly lower cost, but still able to produce similar results to current US models. European shares ended the quarter 10.5% higher with the ECB reducing interest rates by 0.25% to 2.5%, marking the sixth cut since June 2024. The ECB revised its GDP growth projections downward, expecting the Eurozone economy to expand by 0.9% in 2025, down from the previous estimate of 1.1%. German equities increased 15.5% over the quarter, responding positively to the announcement of increased public spending and potential tax cuts. UK equities were up 9.7%, while the Bank of England left its interest rates unchanged at 4.5%, warning of global trade uncertainty. Within Emerging Markets, China experienced a strong rally, driven by government initiatives to stabilise the economy, such as reduced interest rates, financial support for the property sector, and increased liquidity. Chinese companies’ advancements in AI have reinforced their position as a significant force in the technology sector. Brazilian equities rose 14%, supported by a substantial trade surplus, resilient investor sentiment, and continued foreign inflows despite global trade tensions.

On a sector level, information technology and consumer discretionary were the worst-performing sectors of the quarter. The Information Technology underweight added to fund performance, while stock picking within the Consumer Discretionary sector added to absolute and relative performance. Financials and healthcare were the two best-performing sectors over the quarter, with the underweight in financials marginally detracting from relative performance, while the overweight in healthcare and other Defensive sectors contributed to relative performance.

Noteworthy portfolio actions over the quarter included selling the fund’s positions in Goldfields, Bidcorp, Shell, and TotalEnergies, while BP was trimmed. Oil prices headed higher during March despite growing recession risks, resulting in the risk-reward on the energy names deteriorating significantly as their share prices followed oil higher. We trimmed our positions in Alibaba and Coca-Cola, while Abbott was exited following strong performances. The defensive names performed well over the quarter as market participants flocked for safety. The existing positions in technology names, Microsoft, Nvidia, Alphabet, Amazon and Broadcom, were topped up into share price weakness. These are high-growth companies that have significantly deteriorated. We also topped up positions in Kaspi and Evolution, while a new position was initiated in Oracle and JP Morgan.

Notable contributors to fund performance were positions in Alibaba (+143bps absolute, +131bps relative), Pinduoduo (+76bps absolute, +74bps relative) and Jd.com (+58bps absolute and relative). Notable detractors from performance over the quarter came from Google (-76bps absolute, -30bps relative), Microsoft (-49bps absolute, -9bps relative) and Amazon (-36bps absolute, -2bps relative).

The fund is positioned with a large underweight in the Cyclical names, as we see a growing risk of a recession in the US economy. The strong rally in our Chinese e-commerce holdings was used to reduce the EM technology exposure and redeployed into DM technology names, although we maintain a higher-than-average cash holding. The fund remains overweight China through the Chinese technology shares and Kazakhstan through Financial shares.

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Disclaimer

Fairtree Asset Management (Pty) Ltd is an authorised financial services provider (FSP 25917). Collective Investment Schemes in Securities (CIS) should be considered medium- to long-term investments. The value may go up and down, and past performance is not necessarily a guide to future performance.

CISS are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges, and maximum commissions is available upon request from the manager. A CIS may be closed to new investors so that it can be managed more efficiently in accordance with its mandate. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. There is no guarantee in respect of capital or returns in a portfolio. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information, such as fund prices, fees, brochures, minimum disclosure documents and application forms, please go to www.fairtree.com.

Highest rolling one-year return 36.37% (Benchmark: 34.35%) and lowest rolling one-year return -8.28% (Benchmark: -11.27%) (information as at 31 March 2025). The Fund has returned an annualised return of 14.34% since inception (September 2021) (benchmark annualised return of 15.66% since inception). The Fund’s annualised performance over one year is 3.63% (Benchmark: 5.31%). Fund returns disclosed are annualised returns net of investment management and performance fees. Annualised return is the weighted average compound growth rate over the period measured. Fund investment risk indicator level: aggressive. Full performance calculations are available from the manager on request. Annualised performance: Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request. Highest & Lowest return: The highest and lowest returns for any 1 year over the period since inception have been shown. NAV: The net asset value represents the assets of a Fund less its liabilities.

This document is confidential and issued for the information of the addressee and clients of Fairtree Asset Management only. It is subject to copyright and may not be reproduced in whole or in part without the written permission of Fairtree Asset Management. The information, opinions and recommendations contained herein are and must be construed solely as statements of opinion and not statements of fact. No warranty expressed or implied, as to the accuracy, timeliness, completeness, fitness for any particular purpose of any such recommendation or information is given or made by the Manager in any form or manner whatsoever. Each recommendation or opinion must be weighed solely as one factor in any investment or other decision made by or on behalf of any user of the information contained herein, and such user must accordingly make its own study and evaluation of each strategy/security that it may consider purchasing, holding or selling and should appoint its own investment or financial or other advisers to assist the user in reaching any decision. The Manager will accept no responsibility of whatsoever nature in respect of the use of any statement, opinion, recommendation, or information contained in this document. This document is for information purposes only and does not constitute advice or a solicitation for funds.

The Fairtree Global Equity Fund is registered and approved under section 65 of CISCA.

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Cornelius Zeeman

Equity Portfolio Manager

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