Foord Flexible Fund turns Five

Since its inception in 1981, Foord Asset Management has achieved considerable investment success for its clients. This success is largely due to the consistent application of an investment philosophy that strives to get the big calls right; to buy securities at the right price; to take a long-term view and to diversify the portfolios appropriately (in this regard, the portfolio managers constantly challenge themselves by asking “What if we are wrong?”).

It was therefore a natural progression that the skills and techniques applied to Foord’s unconstrained institutional and private client mandates, be offered to the broader retail market. And so, in April 2008, the Foord Flexible Fund of Funds was established to provide individual investors with a single investment solution, designed to meet their needs without the constraints of artificial asset class limits being imposed. The fund was established as a fund of funds to allow the portfolio to invest without limitation in the top-rated Foord International Trust (non-FoF unit trusts cannot invest more than 20% into another unit trust fund).

Investors in the Foord Flexible Fund benefit from Foord’s common-sense, value-oriented investment philosophy. The fund’s name aptly refers to the unconstrained nature of the fund’s mandate, giving the manager full discretion to deliver optimal returns for a given level of risk. The flexibility of this mandate allows for investment across all asset classes including shares, listed property, bonds, cash and offshore opportunities, across all geographies. This fund reflects Foord’s best investment view within the multi-asset class space and can be considered as a “one stop shop” investment solution.

An impressive 5 year track record

The Foord Flexible Fund achieved the all-important five-year track record at the end of March 2013. A five-year track record is important because it is sufficiently lengthy to cover much of a normal business cycle (which can span anything from five to 11 years). This five-year cycle ending March 2013 covered the last phase of the bull market, the advent of the financial crisis, the collapse of Lehman’s, the correlated decline of almost all financial markets, the subsequent loose monetary policy and massive government intervention in financial markets, increased regulation and the on-going European debt crisis.

In this environment, the flexibility afforded to the Foord Flexible Fund of Funds has allowed it to outperform the prudentially-regulated Foord Balanced Fund by over 3% per annum (after costs and expenses). On a since-inception basis, the fund has also outperformed the FTSE/JSE All Share Index and the MSCI Word Equities Index (developed markets) when measured in rands, but with much lower volatility and potential for capital loss. Given the opportunity set, it has also been an achievement to outperform the benchmark of CPI + 5% per annum over this period, thereby allowing investors to grow their capital at an appreciable real rate over the long-term.

In this regard, the Foord Flexible Fund of Funds has delivered meaningful real returns for investors, coupled with careful risk management. We believe that this is an impressive track record for investors to reflect on.

Why the Foord Flexible Fund of Funds?

Asset allocation and stock selection are the key drivers of long-term performance. A flexible investment that permits a dynamic asset allocation approach and high conviction stock selection is well positioned to achieve superior long-term returns with the lowest level of risk.

Foord’s highly experienced investment team take the responsibility for making the asset class allocation decisions. It is the fund manager’s role to balance the valuations of the different asset classes with the diversification benefits and thus offsetting the risk of being wrong. The fact that there are no imposed restrictions to specific asset classes allows for better management of the risk of capital loss.

The relative weightings may change over time as the fund strives to stay abreast of global valuations. Currently the fund has an almost-60% exposure to non-South African assets with a total of 87% of the fund being invested in equities (34% in SA equities and 53% in foreign equities) with the balance being held in cash, commodities (via a gold ETF), listed property and corporate debt.

At the underlying security level, the objective is buy and hold the most attractively priced and viable South African and global assets. Dave Foord as the portfolio manager of the fund is responsible for selecting the securities for the South African building block portfolio, assisted by the experienced investment team. The Singapore-based foreign investment team has significant input into the selection of companies and securities included in the portfolio by way of exposure to the Foord International Trust and Foord Global Equity Fund portfolios.

More about the fund

The Foord Flexible Fund of Funds is managed to an absolute benchmark of the South African CPI plus 5% per annum, measured over a rolling 3 year period. Many may consider this to be an aggressive benchmark to meet and exceed, however, we believe that it is fair and achievable over the long-term. Our performance fee will only accrue when we have met this benchmark and also recovered the fee charged over the course of the previous year (including all performance fees). The fee has been structured based on the daily variance of the fund return relative to that of the benchmark. Investors who buy into the fund when performance has been good are not required to pay a performance fee for historic performance from which they have not benefitted.

Who should invest?

The Fund is suitable for investors with a moderate risk profile, seeking long-term real returns but without the need to earn a high income yield. As mentioned, the foreign asset exposure of the fund is obtained via an investment in the Foord International Trust and Foord Global Equity Funds. The Foord International Trust is a conservative, flexible fund domiciled in Guernsey, while the Foord Global Equity Fund comprises a portfolio of quality companies listed in both developed and emerging markets. Both funds are roll-up funds, meaning that they do not distribute their income. As a result, the income distribution for the Foord Flexible Fund of Funds which declared at the end of February and August can be low to zero. This should not be a deterrent to long-term investors seeking total return.

The fund is ideally suited to investors seeking a balanced exposure to domestic and foreign assets, with more flexibility than a traditional “balanced” fund which is designed to comply with the limits imposed on pension funds and to investors who prefer to delegate the asset allocation decisions to an investment manager with a proven and trusted long term track record of creating wealth.

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The Allan Gray-Orbis Global Equity Feeder Fund remains fully invested in global equities. The objective of the Fund is to outperform the FTSE World Index at no greater-than average risk of loss in its sector.