Global ex­po­sure pays off

The Fo­ord Flex­i­ble Fund of Funds aims to pro­vide in­vestors with a real re­turn of 5%, or five per­cent­age points above con­sumer price in­fla­tion, af­ter sub­tract­ing fees. The fund has a large ex­po­sure to in­ter­na­tional as­sets, which make up close to 70% of the

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The Fo­ord Flex­i­ble Fund of Funds’ 12-month per­for­mance can be at­trib­uted to its large ex­po­sure to in­ter­na­tional as­sets, ac­cord­ing to Wil­liam Fraser, a fund man­ager at Fo­ord As­set Man­age­ment. “The com­bi­na­tion of some good stock se­lec­tion in the global port­fo­lios, to­gether with the sub­stan­tial de­pre­ci­a­tion of the cur­rency, has con­trib­uted sig­nif­i­cantly to the to­tal re­turns dur­ing the past 12 months,” says Fraser.

The top eq­uity pick in the fund is Qi­hoo 360 Tech­nol­ogy with a weight­ing of 2.9%, ac­cord­ing to the fund’s lat­est min­i­mum dis­clo­sure doc­u­ment. The Chi­nese econ­omy is un­der­go­ing a grad­ual shift away from the sec­ondary econ­omy, namely man­u­fac­tur­ing and fixed-as­set in­vest­ment, to­wards the con­sump­tion of goods and ser­vices con­sump­tion, ex­plains Fraser. The coun­try’s ser­vices econ­omy is larger than the sec­ondary econ­omy and is grow­ing at a much faster pace, in ex­cess of 8% per year.

“This is a long-term theme, and hence com­pa­nies that sell prod­ucts and ser­vices into this faster grow­ing sec­tor of the econ­omy will ben­e­fit dis­pro­por­tion­ately, re­sult­ing in su­pe­rior earn­ings growth,” Fraser says.

Qi­hoo is only one of the com­pa­nies that stands to ben­e­fit from the growth in the ser­vices sec­tor in China, he ex­plains. “It is one of China’s largest tech­nol­ogy plat­forms with lead­ing mar­ket share in in­ter­net se­cu­rity, search, browser, mo­bile app and mo­bile gaming,” he says.

“It is our be­lief that in­vest­ment risk in South Africa has in­creased ma­te­ri­ally in the last year, given the in­crease in the mar­ket mul­ti­ple (price-to-earn­ings ra­tio), while the out­look for earn­ings con­tin­ues to de­te­ri­o­rate.”

Fraser doesn’t find a “large num­ber of op­por­tu­ni­ties” in the do­mes­tic mar­ket, with fu­ture re­turns in ex­cess of five per­cent­age points above con­sumer price in­fla­tion. The fund has a solid track record of out­per­form­ing its steep bench­mark of 5% real re­turns over a num­ber of years.

The cau­tious ap­proach to lo­cal, and ex­pen­sive, eq­ui­ties is an­other fac­tor boost­ing the fund’s pru­den­tial in­vest­ment strat­egy. Lo­cal stocks are priced at multi-year high P/Es, beg­ging the ques­tion of when a sharp down­ward correction will oc­cur. Look­ing past China’s man­u­fac­tur­ing woes to its huge con­sumer mar­ket, and the fu­ture po­ten­tial re­turns from this eco­nomic sec­tor are al­lur­ing.

The large off­shore ex­po­sure of the fund makes it a good rand hedge in times of cur­rency weak­ness.

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