Page 168 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 9

despite their strong position and they do not earn much from advertising. Both of these are
potential future monetization opportunities.
Tencent has derated significantly on the back of the Chinese regulatory roll-out. They have
proven to navigate these successfully in the past, with the Gaming clamp-down in 2018. We think
they will do this again and continue to grow more than 10% p.a. over the medium term. They have
an unrivalled ecosystem with various under-monetized opportunities. Their investment portfolio
is worth approximately $200bn, almost 35% of their current market cap. As a whole, the portfolio
is close to breakeven, so Tencent is much cheaper than the forward P/E of 24x would suggest.

Fairtree Equity Prescient Fund

Sector: South African–Equity–General
Fund managers: Stephen Brown and Cor Booysen
Benchmark: FTSE/JSE Capped Shareholder Weighted All Share Total Return Index
(Capped SWIX)

Returns to investors 1 year 3 years
Fairtree Equity Prescient Fund 39.49% 16.69%
Sector Average 25.42% 5.68%
Inflation (CPI) 4.87% 3.85%
ProfileData performance stats to 30 June 2021: CAGR with dividends reinvested
Please describe your investment universe.
Our investable universe is the top 100 to 120 JSE listed equities by market capitalisation. We
have a preference for diversified portfolios with 40-60 listed equity securities.
Please comment on your investment year (July 2020 – June 2021) from a fund manager's
point of view.
Given China's economic restart and significant stimulus we were overweight Earnings Growth,
Cyclical, Defensive and Value sectors in the middle of 2020. Due to uncertainty in SA Inc we were
underweight in this sector. China’s economy remained open at the time of the second wave.
Allowing for a supportive environment of Platinum group metals (PGM) prices contributing to the
Fund being overweight Cyclical, Defensive and Value sectors. The second lockdown slowed the
economy towards the end of 2020 with China still remaining open, platinum prices increased. The
fund was overweight Resources.
The SA Economy continued to show signs of recovery in 2021 with an increase in job
advertisements and an increase in US dollar-denominated South African export commodity price
index, real money supply (M1) growth and a rise in the composite leading business cycle indicator
for South Africa's major trading partners. The latter was linked to sustained and strong economic
activity in China as well as improved economic activity globally as the rollout of vaccines continued
across the developed world. We saw this as a buying opportunity and we started to increase our SA
Inc exposure in the second half of 2020 through retail and industrial exposure.
In May of 2021, after an indecisive first half we saw the Fed begin a hawkish pivot guidance for
US rate hikes as early as 2023. This strengthened the US dollar and caused real yields in the US to
continue to rise which was a headwind for most commodities, especially Gold and much of the fund's
performance detraction came from our gold position over June. The outlook for precious and
industrial metals prices turned negative as China progressed with policy normalization; we bought
into some of this weakness as our investment case for PGMs as well as Copper remained unchanged
and we used some of the outperformance in the SA Inc sectors to fund this tactical rotation.
In terms of risk management, what methods or strategies are you able to use to protect your
clients' investments?
The fund is more diversified than the benchmark, thus holding smaller positions in the largest
capitalisation stocks than the benchmark. This comes with the risk of more volatile relative returns
to the broader market when the largest stocks in the benchmark outperform. We believe, however,

166 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts