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Foord, which manages some top-performing funds, says the key to its success has been good stock-picking and managing its funds for the current uncertainties without taking all-or-nothing decisions.
Foord’s Equity Fund was the top- performing domestic equity general fund over three years to the end of March, with an average annual return of 27.48 percent. Foord’s Balanced Fund was the top-performing domestic asset allocation prudential variable equity fund over seven years to the end of March, with an average annual return of 16.74 percent.
In the domestic asset allocation sectors, as well as in the domestic equity general sector, there is a large variance between the returns of the top and the bottom performers, particularly over the three years to the end of March.
Dane Schrauwen, fund manager at Foord Asset Management, says taking all-or-nothing bets can result in a wide dispersion in performance, especially in the current uncertain investment environment.
Foord does not take these kind of bets, he says, but prefers to diversify across most asset classes and market sectors most of the time, so that part of the portfolio will do well no matter what conditions prevail.
The Balanced Fund’s good performance over the past seven years was a result of its being overweight in equities and choosing good shares for that equity portfolio, Schrauwen says.
Some of Foord’s competitors have had a lower exposure to equities, because they feared a second dip in the recession that started in 2009, he says. These fears have held back these funds, because local equities have returned on average 21 percent a year since March 2009.
With both the Equity Fund and the equity portfolio of the Balanced Fund, Foord has maintained its exposure to equities but has managed portfolio risk by holding good-quality companies that do well even in a recession. These are companies that have good management teams and that can grow their earnings and dividends even in difficult trading conditions, he says.
Recently, some managers took big bets on international shares – as far as the mandates for domestic funds permit. These shares were offering better valuations after the 2008 market crash, and managers expected the rand to weaken after it strengthened to an overvalued level in 2009, Schrauwen says.
While conditions may indicate that the rand should weaken, in practice it can stay strong for longer – and lately it did, he says.
Foreign inflows into the local bond and equity markets have supported the rand over the past two years, Schrauwen says.
Although Foord takes positions based on its view of global and local economic conditions and the outlook for them, it will never bet the farm with your money, he says.
Foord’s portfolios always balance the risk of loss with the manager’s views on conditions, and so, despite Foord’s expectation that the rand would weaken, parts of the port-folios benefited from the stronger rand, Schrauwen says.
Another bet that many of Foord’s competitors took was to sell out of the shares of retailers, because they were looking expensive.
Schrauwen says Foord has retained some exposure to good- quality retailers. These shares are now fully priced and are vulnerable to a correction in the short term, but their earnings growth and dividend yields will support their prices in the long term, he says.
Foord has benefited by not having exposure to many of the commodity shares in the FTSE/JSE All Share index, because commodity prices have fallen over the past year.
Foord has, however, maintained exposure to two large commodity shares, Anglos and Billiton, which have provided a good hedge against potential rand weakness.
Schrauwen says Foord has not followed the trend to deep value investing, which has become very popular. Deep value managers will buy only when they can see that shares are heavily discounted to their fair value.
Foord likes to buy shares when they are cheap, Schrauwen says, but it avoids heavily discounted shares, where there may be problems with the company or its management.
Foord’s zero exposure to government bonds has detracted from the Balanced Fund’s performance relative to its peers, as government bonds have performed strongly over the past three years, he says.
The fund is still negative on bonds, Schrauwen says. Foord expects the rand’s exchange rate relative to other currencies to weaken, and when it does and international interest rates increase, bonds will suffer, he says.
The Balanced Fund has an exposure of about six percent to listed property. Schrauwen says Foord would like to have a higher exposure to property, because it expects good returns from property over the longer term.
However, if the rand should weaken and interest rates increase to combat rising inflation, bond yields will increase. As property yields are priced relative to bond yields, this would result in an increase in the property yield, which would be as a result of declining property prices, Schrauwen says. Foord would view this as an opportunity to increase its holdings in property.