A WORD WITH DAVE
FOORD, MANAGER
OF THE NEDGROUP
INVESTMENTS
STABLE FUND
A word with Dave Foord, manager of the Nedgroup
Investments Stable Fund
1.
Please tell us about the key aspects of the Foord
investment philosophy and highlight some of Foord’s
competitive advantages in managing the Nedgroup
Investments Stable Fund?
Rule number one: Do not lose money,
ANIL JUGMOHAN
SENIOR INVESTMENT ANALYST
Rule number two: Do not forget rule number one.
Our competitive advantage is derived from a dedication
to this simple principle.
Key tenets of our investment philosophy are:
•
To preserve and grow our clients’ long-term savings
in real terms;
•
To define risk as permanent loss of capital – not
volatility;
•
To invest through the cycle – for the long term;
•
To put safety first – diversification, portfolios always
balanced; and
DAVE FOORD
MANAGER OF THE NEDGROUP
INVESTMENTS STABLE FUND
•
To have patience – time is a powerful force.
Most importantly, we treat investors’ capital as we would
our own and not as part of a competition that can be
used to our advantage.
2. The
Nedgroup
Investments
Stable
Fund
has
decision to adopt this process at Foord?
maintained a flexible asset allocation over time and your
long term asset allocation track record is very good. How
We adopted it because both our research and experience
did you achieve this and can you please provide some
show that it works. It allows for diversification and
insights into your asset allocation process?
concentration with conviction. It also provides the
appropriate structure for succession and portfolio
In one word: consistency. Asset allocation, which
manager transitions when needed, while still maintaining
inherently incorporates timing, is responsible for most of
the required levels of continuity from a portfolio
the difference in returns, as much as 80% according to
management perspective.
some studies. We therefore concentrate our efforts on
optimising our asset allocation as far as possible.
5.
Has the success of Foord Asset Management, both
from a performance and growth point of view, led to
While some components of our asset allocation
additional pressures on your time? Are you able to be as
process are simple, other parts are more complex. We
involved in the investment process as you have always
use forecasts adjusted for probabilities and risk – so
been?
inherently it is a quantitative process. Yet judgement
is still the most important element in the process. The
I’ve always managed my time very well. The success
process is not constant or fixed as we are learning from
of the firm has enabled us to pay suitable levels of
and improving it all the time.
compensation for excellent talent. This means that
more great people help with the process now than were
3. The short duration of the Nedgroup Investments
available to me 10 to15 years ago. Nevertheless, as CIO
Stable Fund’s fixed income component offers protection
I am responsible for all actions and results, just as I have
in a rising yield environment, but are you able to earn
always been.
sufficient returns on the underlying instruments?
6. Risk management is one of the cornerstones of
The South African money market industry is one of the
the Foord philosophy. Please elaborate further on your
few in the world providing a return above the inflation
approach in the context of a low equity fund such as the
rate. This is partly why the rand has been relatively strong.
Nedgroup Investments Stable Fund?
Hence we are able to earn a 2-3% real return for most of
the fund’s fixed income component. Interest rates in most
Risk equates to the possibility of losing money and/or not
cases will come down as inflation comes down. A large
achieving the desired results.
portion of the fund is therefore indirectly matched to the
benchmark to ensure a higher probability of meeting the
With the Nedgroup Investments Stable Fund, we believe
benchmark over the appropriate measurement periods.
we should protect capital even more carefully due to
investors requiring more predictability of returns over
4. Foord employ a multi-counsellor approach on the
shorter periods of time versus a typical balanced fund for
Nedgroup Investments Stable Fund. Would you explain
example and we are thus stricter in our risk parameters.
what this is, how it is implemented and why you took the
7. Globally, political uncertainty is elevated and
position who comes to the fore with a good performance
producing some curious reactions within capital markets.
in the short term. As a result, each time period provides
What are some of your thoughts around Brexit, the Trump
another (different) winner when results are measured
presidency and any other key risks on the horizon in 2017?
over short time horizons. It’s our consistency that earns
us favourable long-term returns for our investors.
Brexit and Trump are not risks, they are facts. Uncertainty
is always there. It has the greatest impact when least
For the year to 31st March 2017, our offshore positions
expected. We deal with what we can see by working
have actually done very well against their respective
with probabilities. We deal with what we can’t see with
benchmark in USD. Nevertheless, we’ve been hurt by the
caution.
strong rand due to our full offshore weighting and randhedge exposure. The outcome of the Brexit vote also
8.
The Nedgroup Investments Stable Fund remains one
of the best performers in its category since its inception in
negatively impacted the fund’s performance. We believe
that these are short-term headwinds.
2007. What were some of the strategies or decisions that
have contributed significantly to the Fund’s performance
Recent events such as the Cabinet reshuffle and
during this period?
consequent downgrade by two of the prominent Rating
Agencies have already resulted in a markedly weaker
Consistency! Getting the major asset allocation calls
rand. Longer term, we believe that the fund is positioned
right has contributed greatly. Avoiding losses has also
appropriately both from a bottom-up and top-down
helped the Fund remain at the top end of the ranking
perspective to maximise returns while carefully managing
tables since launch despite the poor relative performance
risk exposures.
that investors experienced during 2016.
11. Could you explain the impact of the Brexit vote on
9.
Over the past year, asset class returns in rands have
the Nedgroup Investments Stable Fund, with a comment
been weak. Is it necessary to change the way you manage
on Capital & Counties in particular, which was hit quite
money in this kind of environment?
hard?
No. We’ve been managing client assets for over three
We called the result of the Brexit referendum correctly,
decades now. Although we’ve taken the opportunity to
but we also believe that the negative impact on the
enhance our process over time, we’ve been careful only
British pound (which was overvalued to begin with)
to do so for the right reasons and at the right times. This
has been too severe. Capital & Counties (Capco) is an
has enabled us to develop our investment process to be
excellent diversifier for the fund, has real assets and a
enduring and robust through various market cycles and
great management team. The collapse in the share price
conditions.
is a fantastic buying opportunity, of which we availed too
early as it subsequently turned out, mainly because of
10. The Fund’s returns relative to the peer group since
Rand strength.
the middle of 2016 have encountered some headwinds.
Could you elaborate on the biggest drivers for this
While there is negative sentiment around the central
positioning and any lessons you have learnt?
London residential property market following the Brexit
referendum, Capco’s Covent Garden assets (58% of
We do not place much emphasis on peer-relative
net asset value) remains resilient. This inimitable asset
positioning. We do not attempt, nor have we succeeded in
recently received a marginal increase in valuation to
the past, at coming first in every month or quarter. There
GBP2.1 billion, as tourism-related retail spend offsets
is usually some other asset manager with an extreme
any weakness in domestic demand. Capco continues to
optimise space in the Covent Garden estate through
which will perform well in an environment where the rand
its leasing activity. Helped by the sharply weaker rand
does continue to strengthen. Inflation will also be much
in recent weeks, the share price is already up more than
lower in this scenario, thereby lowering the overall target
20% from its lows.
return (benchmark).
12. A number of investors have selected the Fund to
Nevertheless, it is our priority at Foord to build portfolios
draw a specified income within a living annuity. What
that remain robust through most types of market
would be your advice to these unit holders?
environments as opposed to placing all our bets on a
single outcome materialising. As mentioned previously,
Investors should get better long term returns in a typical
recent political events will also add to the pressure for
balanced fund that has a higher allocation to equities.
currency weakness.
However, they will also need to be able to tolerate the
14. Can you please tell us more about the Fund’s offshore
greater volatility that comes with it.
positioning?
From the Nedgroup Investments Stable Fund they should
be able to draw an income of 4% per annum, which they
From an asset allocation perspective, we currently
can then increase each year by the inflation rate. This
prefer a high allocation to global equities with particular
will provide an income which will have minimal impact
emphasis on sectors where the earnings growth outlook
on the erosion of their capital values over the long term.
is in excess of global GDP growth. We are invested in
Investors who are able to withstand the shorter term
good quality companies that are trading at attractive
fluctuations that do occur every once in a while should
valuations.
benefit more in the long run compared to others who
capitulate during periods of lower returns.
15. What is the outlook for the Fund from this point
onward? Can you provide a very rough estimate on return
13. A large proportion of the Fund is exposed to foreign
expectations based on the current portfolio structure?
currency, either through direct offshore holdings or South
African companies with overseas operations. What
We believe investors will be able to maintain real levels
will be the impact on the Fund if the rand continues to
of capital in the short term through a higher allocation
strengthen? What is your view on whether this is likely?
to quality, local businesses locally, cash, shorter duration
bonds and a full allocation to offshore. We have no doubt
If rand strength continues it will result in no-to-low
that the Fund will achieve its target return of inflation
returns for a short period. A significant portion of the
plus 4% over the medium- to long-term.
Fund (53.3%) is in rand assets. Of this 16% is in bonds,
Nedgroup Collective Investments (RF) Proprietary
Nedgroup Investments has the right to close unit trust
the fund fact sheet. Excessive withdrawals from the
Limited is the company that is authorised in terms
funds to new investors in order to manage it more
fund may place the fund under liquidity pressures and
of the Collective Investment Schemes Control Act
efficiently.
For further information on the unit trust
that in such circumstances a process of ring-fencing of
to administer the Nedgroup Investments unit trust
funds, including awards, fees and charges, please visit
withdrawal instructions and managed pay-outs over
Portfolios. Unit trusts are generally medium to long
our website www.nedgroupinvestments.co.za.
time may be followed. A schedule of fees and charges
term investments. The value of your investment
and maximum commissions is available on request
may go down as well as up. Past performance is not
A money market fund is not a bank deposit. The total
necessarily a guide to future performance. Nedgroup
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from Nedgroup Investments.
Investments does not guarantee the performance
and any gain or loss made on any particular instrument
This document is of a general nature and intended for
of your investment and even if forecasts about the
held.
In most cases the return will merely have the
information purposes only. Whilst we have taken all
expected future performance are included you will
effect of increasing or decreasing the daily yield, but
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carry the investment and market risk, which includes
in an extreme case it can have the effect of a capital
document is accurate and current on an ongoing basis,
the possibility of losing capital. Unit trusts are traded
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The yield is calculated using an annualised seven day
relating to the information and topics covered in this
currency fluctuations due to its international exposure.
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