FOORD INTERNATIONAL FUND — A FUND FOR ALL SEASONS
Foord International Fund is Foord’s conservative, multi-asset global fund. The fund was launched in 1997 and celebrated its 25th anniversary last month. Portfolio manager BRIAN ARCESE reflects on the fund’s objective and achievements.
The managers’ early ambition for the Foord International Fund was to deliver meaningful US inflation-beating returns over long periods from a conservatively managed portfolio of global securities. On a since-inception basis the fund has delivered exactly that — with US dollar returns of 6.7% per annum after fees, when US inflation averaged 2.3% per annum.
While not the fund’s objective, it is also pleasing to see performance approach world equity market returns (7.2% per annum with significantly more volatility) and meaningfully exceed the fund’s peer group (4.0% per annum). Small return differences compounded over long periods have a dramatic impact on portfolio outcomes: $100,000 invested at inception would have grown to $513,340 in the fund, but to just $268,065 if invested in the peer group.
The past quarter-century has been eventful: the run-up to and popping of the technology bubble, a decade-long war in the Middle East, the global financial crisis, the European sovereign debt crisis, the US credit downgrade, the ongoing US-China trade war, a global pandemic, and Russia’s invasion of Ukraine.
As a reminder, Foord International is a conservatively managed multi-asset fund. While not constructed against or benchmarked to global equities, it is useful to compare the fund’s performance through time against that of global equities, particularly during times of increased stress.
We covered two of these periods extensively five years ago in the fund’s 20th anniversary piece — the development of the dotcom bubble and then from its bursting to the global financial crisis. In both, the fund initially lagged, but then dramatically outperformed during the market draw downs and across the full cycle.
The current investment cycle is elongated and arguably incomplete. The biggest difference in comparison to past cycles is the dearth of real return opportunities outside of key equity markets. Coordinated action by global central banks to supress interest rates has driven returns after inflation in large portions of the credit market into negative territory while simultaneously pushing equity valuations higher.
Within this long cycle, markets have proven no less volatile than in the past. The fund protected capital and materially outperformed markets over three memorable selloffs: in late 2018 during the US-China trade war, at the onset of the COVID-19 pandemic in 2020, and in the first quarter of 2022 as the US Federal Reserve started its inflation-busting rate hike cycle and Russia invaded Ukraine.
Each of these periods shows how the fund protects capital during periods of stress. But more importantly, they show that fund construction and diversification can offer investors a source of uncorrelated real return — evenduring volatile periods.
Over the past 25 years we’ve forecast far more risks than have come to fruition. As a result, we don’t position the portfolio for binary outcomes. Instead, we strive to construct an all-weather portfolio that delivers inflation-beating returns regardless of the environment. This careful stewardship has been rewarded with one of the longest tenures in the peer group.
After decades of uncharacteristic sanguinity, geopolitical risk is an increasing worry. Inflation risk has gone from being benign to posing a formidable threat. We will continue to guard against these and countless other risks. With growth prospects uncertain and developed market equity valuations stretched, the fund remains cautiously positioned.
We expect the companies we invest in to generate higher returns than global peers while operating with less leverage — these firms should grow their earnings ahead of developed market inflation. The fund’s cash position, although a drag in rising equity markets, provides optionality to exploit volatility should the cycle end abruptly and markets draw down.
It seems fitting that as we close the books on the 100th quarter for Foord International Fund, we have posted one the best quarters in the fund’s history relative to equity markets during this quarter the Foord International Fund rose +5.5% against a global equity market decline of -5.5%.