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
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.