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The since-inception performance of the Foord Conservative Fund has been underwhelming. But it is showing its conservative stripes in tough markets. Portfolio manager DARYLL OWEN revisits the fund’s purpose and credentials.

Long-term investment is about achieving meaningful, inflation-beating returns. The best way to beat inflation is to invest in quality companies and property counters that have pricing power. Bonds are lower-yielding alternatives and even cash offers real returns at times.

We know that equities attract much more volatility than interest-bearing alternatives. But they also usually deliver much higher long-term returns. Volatility is however not risk. And in the longer term, daily volatility doesn’t matter. 

Typical balanced funds assume an investment horizon of five to seven years. This time horizon corresponds with the average business cycle and is considered long term. In our view, most investors have a long-term investment horizon. Be it for their own lives, their surviving spouse or their heirs. 

A small subset of investors has a time horizon shorter than five years. For this group of investors, Foord created a conservative balanced fund. We called it the Foord Conservative Fund to differentiate it from the Foord Balanced Fund. The principal difference is its restriction to a maximum of 60% in shares.

We are mindful that Foord Conservative Fund investors have a medium-term time horizon. The fund is still managed to deliver inflation-beating returns. But it does so within a more cautious framework. Over time, we expect the fund to deliver a lower yield than its big sister, Foord Balanced Fund. 

A key tenet of Foord’s investment approach is to match a fund’s investment risk to its investment objective. We try to own assets that suit the investors’ profile and time horizon. The Conservative Fund is therefore not just a copy of the Balanced Fund with 15% less equity. The types of investments we choose and the position sizes are more conservative.

We are now experiencing a global pandemic and market rout (see COVID-19: The Pin That Popped The Bubble). It is natural for investors to be worried. Worried for their own health, for their family and for their retirement savings. It is not comfortable seeing your investments diminish. 

The FTSE/JSE Capped All Share Index (CAPI) collapsed 13.3% in March. The worst performing balanced funds tumbled by 14% to 16%. On average, balanced funds fell a little over 10%. In contrast, the Foord Conservative Fund declined 5.3%. It was ranked 12th of 95 comparable funds in the month. 

This excellent relative performance was achieved without resorting to mass selling of equities. That is a gamble that precipitates a second binary decision on having to time the market low.

Pandemics aside, we believe the JSE has been in a bear market for the past two years as Ramaphoria waned. Over that period, the fund has delivered 8.4% per annum (after fees and after the March drawdown). The CAPI fell 9.1% per annum over these two years. Now that’s a meaningful, inflation-beating outcome in difficult conditions.

Foord Balanced Fund is undoubtedly our first-choice investment strategy for retirement fund products. But Foord Conservative Fund is a good alternative for investors who need to dial down the medium-term risks.


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