Manager Research

In this note, we discuss our decision to downgrade the Fairtree Equity Prescient fund to Tier 2. In addition, we also detail our thinking on the Allan Gray Bond fund’s recent portfolio manager change.

Fairtree Equity Prescient Fund Downgraded to Tier 2

Following the announcement of Stephen Brown’s sabbatical, we have resolved to downgrade the Fund to Tier 2 from its existing Tier 1 rating.

While this is still a recommended fund, we do feel that the threshold for minor concerns has been reached and as such we feel that a Tier 2 rating is appropriate at this stage.

We see these minor concerns manifesting in the following way:

Stephen has been integral to the fund’s success to date and his sabbatical has resulted in a change to the portfolio management structure and dynamic which is not yet tested. However, what does give us some comfort is the fact that Cor Booysen, who has been managing the fund alongside Stephen and has also played an integral role in the fund’s success will still be managing the fund.

Cor is now the sole lead portfolio manager on the fund and three senior analysts (Chantelle Baptiste, Deon Botha & Donald Curtayne) have been promoted to co-portfolio managers on the fund. Although we do feel that the new structure is well considered, and the three new co-portfolio managers have (1) been with the business for some time and (2) are all highly competent investment professionals, they will need some time to settle into their new roles as Cor also adjusts to his role.

In summary, we believe that a Tier 2 rating more accurately reflects the current management environment the fund finds itself in. Beyond the concerns highlighted above we still believe that the Fairtree business is supportive of the strategy, that there is a strong research team capability which provides insightful views and that the investment philosophy & process will generate alpha for investors. We will continue to monitor the fund and assess how the team adapts to the new structure.

Allan Gray Bond Fund - Update

Earlier this year, Allan Gray informed us that Londa Nxumalo, the portfolio manager for the Allan Gray Bond Fund, will be relocating abroad and sole management of the Bond Fund will be handed over to Thalia Petousis.

Thalia has been with Allan Gray since 2015 and forms an integral part of Allan Gray’s fixed income capability, she also manages the Allan Gray Money Market Fund and a slice of the fixed income allocation in the Balanced fund. We have met with Thalia several times in the past and following this recent announcement we had the opportunity to meet with her again to discuss the transition.

Ultimately, we are comfortable with the change at this stage and we continue to believe that this fund is a relatively unique offering in the fixed income space in that duration is managed flexibly and the aim is primarily to generate absolute rather than relative returns.

With that being said, we do recognize the fact that this is a significant change and it is also the second lead portfolio management change to the fund in the last five years. For that reason, we feel that retaining the Tier 2 rating on the fund is appropriate.