Fairtree SA Equity Prescient Fund Q1 2025 Commentary
Market dynamics
Market Overview
The FTSE/JSE All Share (ALSI) Index, Capped Shareholder Weighted (Capped SWIX) Index, and Shareholder Weighted (SWIX) Index all increased by 6.0% during the quarter. Industrials and Resources increased by 3.1% and 30.0%, while Financials decreased by 1.8%. The rand appreciated by 2.8%, ending the quarter at R18.3 against the US dollar.
During Q1, Bonds increased by 0.7% and Cash returned 1.9%. The MSCI Emerging Market Index increased by 2.9% (in USD), outperforming the MSCI World Index, which decreased by 1.8% (in USD). The MSCI South Africa Index increased by 13.8% (in USD).
During Q1, Iron ore increased by 1.6% to US$96.7/t and Brent crude oil increased by 1.6%, ending at US$74.8/bbl. Copper increased by 11.6% to US$9658.7/t. Gold increased by 19.0% to US$3123.6/oz, Platinum increased by 10.0% to US$997.8/oz and Palladium increased by 8.6% to US$990.7/oz.
The VIX Index (Volatility or “Fear” Index) increased by 28.4% to 22.3 during Q1.
Economic Overview
2025 began with caution and volatility as the market tried to anticipate what US President Donald Trump’s new administration would announce with regards to policy, taxes and trade tariffs. Trump’s playbook of announcing steep tariffs followed by negotiations to extract concessions created volatility, as well as concerns that higher US trade barriers will be inflationary for the US and negative for economic growth. This concern was echoed when the Federal Reserve paused rate cuts, citing solid US economic data and stickier inflation.
Germany abandoned its long-standing fiscal conservatism, lifting its spending cap and approving a defence budget boost. While the threats of escalating tariffs skew near-term growth risks to the downside, medium-term prospects have been boosted by seismic changes in Europe’s approach to defence spending. Diplomatic tensions in Europe escalated as a fallout between the US and Ukraine stalled peace negotiations.
Resources outperformed, led by gold, which rose as investors flocked to safe havens. Our positions across precious metals contributed to performance. We remain bullish on gold driven by central bank purchases, geopolitical tensions and the possibility of structurally higher inflation.
The global AI race faced disruption when Chinese company DeepSeek released a competitive AI model at a fraction of the cost of its US counterparts. This development triggered a reassessment of US exceptionalism and raised questions about AI investment returns. The Chinese AI-driven rally benefitted Prosus, which contributed to performance. This was somewhat muted when Prosus announced the acquisition of European-listed Just Eat Takeaway. The announcement created market concern regarding the company’s capital allocation, given a rather poor track record.
Heightened uncertainty weighed on risk sentiment, keeping the USD strong and exerting pressure on emerging markets. Furthermore, South Africa found itself in Trump’s crosshairs, as the expropriation bill raised questions about the sustainability of AGOA trade benefits.
South Africa has been hit by two major headwinds: political instability within the Government of National Unity (GNU) and new global reciprocal tariffs announced by the Trump administration.
Tensions between GNU partners were always expected, and recent developments have underscored the challenges of co-governing while maintaining party identities. Since last year’s election, South Africa has entered a new phase where no single party holds full responsibility for the country’s future. The delay of the February 2025 budget illustrates the shifting power dynamics. The key question is whether the GNU’s composition will allow for economic reform and support growth. Market reactions suggest growing concerns that changes within the coalition could lead to weaker policy outcomes, and we have seen the ZAR dislocate from fundamentals due to these risks.
On the local front, discretionary retailers provided trading updates that were softer than expected following strong sales guidance provided towards the end of 2024. This detracted from performance along with our exposure to domestic financials.
Portfolio performance
The Fund’s retail asset class returned 4.36% during the quarter, underperforming the FTSE/JSE Capped Shareholder Weighted (Capped SWIX) Index by 119 bps. The Gold sector was the key performance contributor during Q1. The Fund’s performance was positively impacted by positions in Goldfields (67.26%), AngloGold (66.83%), as well as the Discretionary sector with Prosus (12.36%), Naspers (8.26%) and Anheuser (20.54%). Positions in Mr Price (-24.95%), Glencore (-19.44%), Truworths (-27.50%), FirstRand (-5.42%), and Foschini (-26%) detracted from performance.
Portfolio positioning and outlook
The year will remain dominated by volatility as the market tries to anticipate Trump’s policies which remain a random walk and the pace of easing by the Fed. Heightened uncertainty will benefit gold, and we remain bullish on gold, driven by continued central bank purchases, geopolitical tensions and the heightened risk of recession in the US.
The overarching macro theme for China in 2025 will be rising external hostilities amid prolonged domestic economic hardship. It remains unclear if we have reached the true bottom of the property market slump, which in turn keeps domestic confidence subdued. Chinese policymakers will face significant challenges as they navigate this perfect storm.
Domestically, the delay of the Budget increased concern about whether the new government coalition can remain intact long enough to drive meaningful reform. Foreign relations will be a key theme for the year ahead and will be closely scrutinised, with South Africa being no exception. The expulsion of the ambassador from the US has added to this pressure, underscoring foreign policy tensions within South Africa’s coalition government.
The outlook for 2025 is challenging to forecast and uncertain. Thus, we have ensured that the portfolio has liquidity and diversification to position it for many possible outcomes. While uncertainty and volatility are concerning, they often create compelling opportunities, which we will continue to pursue.
Topics
Disclaimer
Fairtree Asset Management (Pty) Ltd is an authorised financial services provider (FSP 25917). Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments.
The value may go up as well as 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 on request from the Manager. A CIS may be closed to new investors in order for it to 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 101.47% (Benchmark: 54.24%) and lowest rolling one-year return -23.82% (Benchmark: -24.53%) (information to 31 March 2025). The fund has returned an annualised return of 14.39% since inception (November 2011) (benchmark annualised return of 10.35% since inception). The fund’s annualised performance over 1-year is 22.08% (Benchmark: 22.87%). The fund’s annualised performance over 3-years is 9.92% (Benchmark: 8.20%). The fund’s annualised performance over 10-years is 11.11% (Benchmark: 6.84%). Fund returns disclosed are annualised returns net of investment management fees and performance fees. Annualised return is 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.
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