Fairtree SA Equity Prescient Fund Q2 2025 Commentary
Market Overview
The FTSE/JSE All Share Index (ALSI) and the Shareholder Weighted Index (SWIX) increased by 10.2%, while the Capped Shareholder Weighted Index (Capped SWIX) increased by 9.7% during the quarter. Industrials, Resources and Financials increased by 11.8%, 9.4% and 8.5%, respectively. The rand appreciated by 3.3%, ending the quarter at R17.71 against the US dollar.
During Q2, Bonds increased by 5.9% and Cash returned 1.9%. The MSCI Emerging Market Index increased by 11.9% (in USD), outperforming the MSCI World Index, which increased by 11.4% (in USD). The MSCI South Africa Index increased by 13.6% (in USD).
Over the quarter, Iron ore decreased by 7.2% to US$88.5/t and Brent crude oil decreased by 8.0%, ending at US$66.7/bbl. Copper increased by 4.1% to US$10050.7/t. Gold increased by 5.8% to US$3303.1/oz, Platinum increased by 36.2% to US$1359.4/oz, and Palladium increased by 11.7% to US$1106.9/oz.
The VIX Index (Volatility or “Fear” Index) decreased by 24.9% to 16.7 during Q2.
Economic Overview
The second quarter of 2025 began with heightened market volatility following the aggressive US trade policy. President Trump’s imposition of sweeping tariffs on all US imports, including a full suite of new measures targeting over 60 countries, reverberated across global markets. The scale of the tariffs was far broader than expected, particularly the restrictions targeting Chinese goods. This escalation effectively curtailed bilateral trade with China, raising fears of stagflation as inflation expectations rose and economic growth expectations slowed. Coupled with fears of the possible removal of Fed Chair Jerome Powell, several daily trading sessions witnessed the unusual spectre of simultaneous selloffs in the S&P 500, Treasuries and the US dollar.
The strained US-China relationship weighed on Chinese growth expectations and commodity demand. The ripple effects were felt globally, with industrial metals under pressure. Oil prices weakened on OPEC+ supply signals and deteriorating global demand expectations, despite the brief spike in oil when Middle East tensions flared up.
Uncertainty, combined with inflation fears, led to slowing global growth expectations, and US consumer confidence plunged to its second-lowest level on record, reflecting acute anxiety about future price pressures. In a related development, Moody’s downgraded US debt, citing mounting government indebtedness that “threatens America’s status as the world’s safe haven”. Collectively, these data points fed into a narrative of slowing growth and rising stagflation risk.
Early in May, the US announced a temporary pause on China tariffs, and global risk assets recovered. As the quarter progressed, markets judged that the latest round of tariff threats would once again give way to negotiations. Early indications of resumed talks with China, plus a softer tone toward Europe, encouraged a broad rebound in equities. At the same time, Washington pushed through a sweeping fiscal package that extends tax relief while boosting spending. Against that backdrop, the dollar weakened, and commodity prices and emerging markets benefited towards the end of the quarter.
Domestic counters participated in the global rally. Signals from the SARB and Treasury that they aim to shift the inflation target closer to three percent sparked a meaningful bond rally, taking the benchmark 10-year yield below the technical 10 percent level and supporting the rand. Political tension within the GNU eased after another fallout within the month between the ANC and DA, resolving its cabinet spat when President Ramaphosa asked coalition partner DA to nominate a new deputy minister, quelling fears of a breakdown. Separately, South Africa ticked off the final Financial Action Task Force milestones; an on-site review later this quarter should pave the way for removal from the grey list in October.
Portfolio performance
The Fund’s retail asset class returned 8.31% during the quarter, underperforming the FTSE/JSE Capped Shareholder Weighted (Capped SWIX) Index by 140 bps. The Consumer Discretionary and Financial sectors were the key performance contributors during Q2. The Fund’s performance was positively impacted by positions in Naspers (22.08%), Prosus (17.82%), AngloGold (16.94%), FirstRand (8.69%) and Sanlam (13.33%). Positions in Harmony (-7.39%), Aspen (-27.02%), Standard Bank (-1.38%), Kap (-18.97%), and Kumba (-8.66%) detracted from performance.
Portfolio positioning and outlook
The year is likely to remain marked by volatility as the market tries to anticipate the next of Trump’s policies. 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. A recent development in precious metals has been a sharp rally in the PGM basket, underpinned by platinum’s significant price move.
The overarching macro theme for China in 2025 will be rising external hostilities amid prolonged domestic economic hardship. The key focus in the third quarter will be the effective tariffs imposed by the US and the reciprocation of Chinese officials.
Domestically, the market remains optimistically cautious concerning policy and the new government coalition. South African foreign relations have been tested this year and will remain in the spotlight.
The outlook for the remainder of 2025 is challenging to forecast and uncertain. Thus, we have ensured that the portfolio has liquidity and diversification to position it to navigate multiple possible scenarios. While uncertainty and volatility are concerning, they often create compelling opportunities, which we will continue to pursue.
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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 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 30 June 2025). The fund has returned an annualised return of 14.77% since inception (November 2011) (benchmark annualised return of 10.90% since inception). The fund’s annualised performance over 1-year is 19.82% (Benchmark: 24.56%). The fund’s annualised performance over 3-years is 15.69% (Benchmark: 15.86%). The fund’s annualised performance over 10-years is 11.95% (Benchmark: 7.85%). 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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