Fund Name: Foord Equity Fund Co-Portfolio Manager: Brian Davey
Fund Description
The Foord Equity Fund is a general equity portfolio which aims to construct a diversified portfolio of quality companies at reasonable prices to achieve long-term returns with minimum risk of capital loss. The fund is mostly fully invested in JSE equities with the benchmark being the JSE All Share Index.
Background and Past Performance
Since inception (September 2001) the fund has produced an annual return of 19%, 3.8% above the benchmark. Its capital preservation style is depicted in the portfolio outperforming the benchmark more than 75% of the time when the market went down.
In 2007 management of the fund was split between fund managers (currently three) in order to mitigate key man risk. Each co-fund manager manages their portion of the fund independently drawing on the 19 member investment team.
Over the last 12 months the fund’s performance has been disappointing, up only 2.2 % versus its benchmark of 5.0%. This is largely due to the funds large underweight position in Naspers, which has appreciated 37%.
Investment Style
It has a capital preservation style with a long-term (5 year) investment time horizon. Manager risk is spread between three independently managed portions of the fund. Despite this approximately 80% of the portfolio is concentrated on 20 shares, which is drawn from their 19 member investment team.
The fund is not benchmark focused.
Over the last year the fund has been managed very conservatively. It has had a negative outlook on the Rand, resulting in +70% of investments being in Rand hedge shares.
Investment Process
The fund appears to be more top-down (macro-economic factors) driven with a sector allocation. This is then married with fundamental relative valuations based on share rankings, which is driven by earnings forecasts and exit P/E multiple rankings. Quality of company and management are the primary drivers in ranking shares and outweighs deep value opportunities.
Portfolio Positioning
The fund is +70% invested in Rand hedge shares.
Major sectors:
Consumer goods 35%
Financials 15%
Technology 12%
Basic Materials 12%
Industrials 6%
Telecoms 6%
Major over and under positions relative to the All Share Index
Overweight
Steinhoff, BAT, Aspen, FirstRand, Sasol, Coronation
Underweight
Naspers, SAB, Richemont, Remgro, Commodities, Precious Metals.
Is the Fund Manger invested in the fund?
Not invested. Remuneration bonuses are based on fund’s performance.
Fund Manager’s Market Views
A conservative approach is being taken. Despite the Rand’s 15% appreciation this year a negative view is still being maintained. Linked to this is the likely investment downgrade to the country by rating agencies at the end of the year. Local interest rates are likely to remain as is for the next 12 months.
The All Share Index is likely to be flat to 10% up over the next year, with a similar view for global markets. They do not see a major market decline in the foreseeable future.
Investonline View of the Fund
Foord and the fund have a good investment track record. They are experienced, have a solid investment process and a good investment team supporting the fund.
Currently their investment view is very aligned to a weakening Rand and capital preservation, which has resulted in +70% of the portfolio being invested in Rand hedge shares that are largely defensive in nature. Despite this the fund has only underperformed its benchmark by 1% this year as the Rand has appreciated 15%, and the fund has missed opportunities in the mid-cap sector (mostly local dominated shares) that has rallied +20%.
Our concern is the fund has a very “one-sided” negative Rand view which promotes the theme of investing in offshore dominant companies. Calling the direction of the Rand is still very difficult and hence a more balanced approach is needed. In addition, the market investment theme of investing in quality defensive companies (at often inflated values) appears to be coming to an end.
Currently we believe an investment portfolio needs a more balanced approach. Therefore this fund should not form more than 25% of an aggressive portfolio that has a +5 year investment horizon.