FOORD FIXED INCOME FUNDS
We reported on the August appointments of experienced fixed income portfolio managers Rashaad Tayob and Farzana Bayat in Foreword Issue 62. Since then, they and the Foord team have launched two new fixed interest funds, which are now available to direct investors. PAUL CLUER introduces the Foord Flex Income Fund and the Foord Bond Fund.
The Foord Flex Income Fund seeks to deliver a high income yield for investors. It carries some prospects for capital gain and a very low probability of capital loss over the investment horizon of one to two years.
It invests in a dynamic mix of listed and unlisted interest-bearing investments and sometimes into shares and listed property in small amounts. The fund does invest into foreign interest-bearing investments, such as those priced in US dollars. However, the managers will typically hedge out the currency risk of such investments to deliver a much smoother return profile for investors.
The Foord Flex Income Fund is a low risk fund. It sits just two notches up from the ultra-conservative money-market funds. If you invest for six months or more, the chance of a price decline is low. But because of the nature of its investments, you can expect to earn a higher income yield than what is available in money market funds. Right now, the fund is yielding 8.7% per annum, but the yield will change over time as many of the instruments have variable interest rates.
The fund is appropriate for investors who have short-term savings needs. The yield is high but will be taxable for most investors. If you have a savings horizon of longer than two years, there are better products in the Foord range that will capture more capital growth at a lower tax burden. Investors should not be tempted to time markets by switching out of their long-term savings strategies to use the fund as a parking vehicle for cash. Such activity carries significant risks to investment outcomes and incurs capital gains tax liabilities.
The Foord Bond Fund is a specialist fund that invests in a broad spectrum of South African bond assets. At 10.8%, its yield is substantially higher than the Foord Flex Income Fund, but comes with more risk of loss in the medium term. Bonds deserve a place in most investment portfolios, at least most of the time. However, we would recommend that investors seek financial advice before including this fund into their portfolios in significant amounts.
Both funds should beat inflation over time, but not by the amounts needed to compound meaningful inflation-beating returns. Investors will need other assets to do even heavier lifting on the inflation front in their retirement portfolios. This is where the Foord Conservative, Foord Balanced and Foord Flexible Funds come into their own.