Manager Research
all members of our manager research team have over ten years of investment experience.
We have resolved to downgrade the Fairtree Flexible Income Plus and BCI Income Plus funds to Tier 3. Our primary concern is around the execution of this process in the narrow and illiquid SA-credit market. Their risk management process is quantitatively driven where diversification is the primary risk mitigator in the fund, rather than default avoidance. As such, the expectation is that the fund will endure a manageable exposure to defaults over time, which due to the diversified nature of the exposure and the smaller positions sizes, is expected to have a small impact on fund performance.
Our concern is whether the narrow and illiquid SA-credit market enables the portfolio to be as diversified as the managers would like, which compromises the risk management process. In addition, illiquidity and lack of trading in the market mean bond prices don’t reprice to reflect the underlying fundamentals. In the event of sustained outflows, illiquid instruments may have to be sold at lower fair values, exposing investors to potential unanticipated losses. While market dynamics are behind our primary concerns with the fund, it is our view that a fund’s process should be executable in the market in which it operates.
Finally, we also have concerns with oversight and focus on the local component of the fund (which is where our concerns are) by a team that is mostly located offshore.
Fairtree Flexible Income Plus & BCI Income downgraded to Tier 3
24 Apr 2020