Page 164 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 9 Fund manager interviews

It might be meagre in terms of losses, but let us never forget the effects “yet another default” will have
on investor perceptions – perhaps market reaction will offer a better entry point into the asset class.

In terms of risk management, what methods or strategies are you able to use to protect your
clients’ investments?
We believe that diversification is a fund manager’s primary defence against catastrophic loss of
clients’ capital. As a result, the fund is highly diversified from a sector perspective as well as from a
holdings perspective, with small allocations across a large number of constituents which make up
the fund.
The holdings of the fund are also highly liquid, which is an important factor when assessing risks
to the fund.
Overall, portfolio risk management is embedded in our daily decision-making, with various risk
management measures in place to mitigate risks that may arise.

Comment on the year ahead and, if possible, estimate the performance of your fund over 2 or
3 years. What are your targets and objectives for the year ahead?
Looking to the third quarter of 2025 and beyond, the weakness that was witnessed in the previous
quarters was seized upon and delivered excess performance during the second quarter. Credit
spreads have narrowed again; however, delivering some healthy spread duration returns for the
fund. This opportunity has closed, as the iTraxx 5-year Crossover spreads ended the quarter at 282
bps, or some 47 bps lower than where they ended the first quarter of the year.
Currently, the fund spread sits at 365 bps, which is a little higher than where they were at the
beginning of the second quarter. After the two 25 bps rate cuts in April and June, EURIBOR has
reduced to 1.94%, which indicates a total yield of around 5.60% on an NACQ basis. Subtracting the
A Class TER of 0.97% from the yield gives us a pro-forma total return expectation of 1.15% for the
third quarter, in EUR terms for the Fairtree Global Flexible Income Fund (UCITS).
This neglects capital gains or losses due to spread compression or expansion, as well as any
movements in administered rates at the meetings in Q3 2025. We have pencilled in one more interest
rate cut by the European Central Bank (ECB) at one of the upcoming meetings and believe the risk
case is that the ECB may have already completed its cutting cycle. This outlook is dependent on the
European inflation trajectory and its convergence to the official target of 2%, as well as some more
market-friendly international relations with the US.
Which asset classes do you expect will give the best total rates of return over the next
few years?
We are cautious of attempting to predict market performance, especially in the current market
environment of global policy uncertainty, heightened geopolitical tensions, sticky inflation, and so
forth.
As credit investors, we are cautiously bullish on credit. While spreads remain tighter than they
have been for some time, we believe we can still find opportunities to extract excess spread without
commensurate increases in portfolio risk.
Local and offshore fixed income levels seem fair at the moment as investors jostle with the
opposing forces of increased risk aversion and reflationary pressures. Beyond the fixed income
universe, the global economic backdrop has shown some improvement, with global risk markets
currently looking healthy.

Offshore investments are heavily influenced by the rand. Give your view on the rand over the
next 1, 3 and 5 years
While the fund is rand-denominated, the majority of the underlying assets are EUR-denominated.
The fund is also exposed to USD and GBP assets, although the FX risk associated with those assets
is hedged back to EUR. The fund does not hedge its EUR/ZAR FX risk. As a result, investors will be
exposed to EUR/ZAR currency movements.

162 Profile’s Unit Trusts & Collective Investments September 2025