Manager Research

We recently concluded rating reviews across both the Futuregrowth and Foord fund ranges. We provide a summary of our views across both businesses below.

Futuregrowth:

The review covered ratings on both the Old Mutual Bond and Old Mutual Income funds, below we provide a short summary of our views. Both funds were last reviewed in 2019 and we have retained a Tier 1 rating on the Income Fund and a Tier 2 rating on the Bond Fund. The funds are managed by Futuregrowth Asset Management.

Old Mutual Income Fund (Futuregrowth)

We have rated this fund Tier 1. We believe that Futuregrowth is a dedicated fixed income boutique that manages all of their strategies within their circle of competence. Following our prior review in 2019, we raised a minor concern around the company’s shareholding structure which may act as a hindrance to them exercising full investment autonomy across their retail funds. However, during our most recent review we were able to gain some comfort around this element. We believe that their majority shareholder, the Old Mutual Investment Group (OMIG) has generally been supportive and we expect they will continue to play a less influential role in the business going forward. Although in this review we did raise some concerns around a string of team departures, Futuregrowth is a substantial business that is able to incentivise investment staff and we have seen no turnover among senior team members. We continue to be impressed by the quality and depth of the research that the investment team produces and we feel that they have a genuine edge in income orientated investing. 

Old Mutual Bond Fund (Futuregrowth)

We have rated this fund Tier 2. In addition to our business and shareholder views, we are also confident that the same research depth that filters through to the Income Fund, also filters through to the Bond Fund. However, the reason why this fund is rated Tier 2 is that we feel the team is somewhat constrained in implementing their best view, more so than the Income Fund. This is largely due to the investment parameters that have been put in place and are controlled by Old Mutual. While we have seen some progress made since our last review in relaxing these parameters, we will need to see whether the team takes advantage of this going forward.

Foord:

The review of Foord’s range of funds included funds managed out of both the South African and Singapore offices. The outcome of this review is that the rating on two strategies has been upgraded while the remainder of the ratings have been retained at their current levels. A summary of the changes can be seen in the table below (rating changes highlighted in bold):

We remain broadly comfortable with Foord’s business where we find evidence of an investment orientated culture with a narrow product offering and the scale to endure periods of underperformance. Foord have shown a desire to future-proof the business with a conscious effort to develop a competent global offering through the creation of their Singapore office. We previously raised concerns with Dave Foord’s ability to both build a successor team and then to manage his eventual exit from day-to-day business operations. We have seen an improvement across these two areas from our previous reviews.

In addition to these overarching business comments we provide comments relating to each investment unit below:

Foord Global Equity Fund (& Feeder)

The outcome of the review was to upgrade the Foord Global Equity Fund from Tier 3 to Tier 2. The previous Tier 3 rating was informed by a lack of confidence in the global equity process and need to see the stability in the Singapore team filtering through into demonstrable investment skill in global equities. The latest review saw an improvement across these concerns. There has now been an extended period of time where the core of the team has remained stable. We can now form a reasonable level of confidence in what we can expect from their global equity offering. There is also a sufficient level of breadth and depth within the team to cover their opportunity set. We retain minor concerns over the longer-term succession to Dave Foord within this team and will continue to monitor turnover in key personnel.

Foord were able to evidence a clearer link between what they are looking for in global equities and the characteristics which ended up driving the performance of the fund. We find a relatively high conviction portfolio with long holding periods where returns are predominantly driven by earnings growth through time. This, as with the improvement relating to prior team concerns, allowed a greater level of comfort to be developed. We do note that there is a potential Asian bias within the global equity fund. This is something for investors to consider and is a characteristic which we will continue to test through time.

The improvement across the areas of prior concern resulted in an upgrade to Tier 2 for the Global Equity Fund (as well as the feeder). These comments regarding the team and investment process can be extended to the Foord International Fund which retains its Tier 2 rating. The International Fund previously held a Tier 2 rating (relative to the Tier 3 for Global Equity) due to the more consistent and experienced portfolio management team which was responsible for the fund.

Foord Flexible Fund of Funds

The change in rating for the Flexible fund was informed more by our general level of confidence in the fund to achieve its objectives over time rather than any specific event. As we mentioned above, we have upgraded the Global Equity Fund to Tier 2, and Foord Flexible Fund allocates roughly a third to that fund. The rating for the Foord Flexible Fund of Funds therefore is upgraded in line with this.

Local Funds (Equity, Balanced and Stable)

While there was no rating change to any of the local funds there are some points from the review worth noting.

Just as with the global team, we have seen a greater degree of structure introduced with the addition of Nancy Hossack as a portfolio manager within local equities and Pravarshan Murugasen promoted to a head of equity research role. These are positive developments and speak to a greater focus on building a team beyond Dave.

The review process identified that there have been some hard lessons learnt by Foord around underestimating corporate governance errors in SA over the past few years. This despite good research depth and an experienced team. This is largely due to Foord’s equity process requiring a higher quality threshold than many of their local peers. We wonder how a process like this functions in a narrow market like SA where there is more ‘low quality’ than ‘high quality’ on offer. The key for us is how Foord adapt to this problem, recent evidence suggests that they have struggled. We will continue to follow this and update our views accordingly should further evidence present itself.

To conclude, the general outcome of the review was more positive than our previous interactions with Foord. Where we held material concerns before we have largely seen improvement across these areas. Whilst improved, our longer-term concerns regarding succession and culture at Foord remain present. Even saying this, we do find evidence of a conscious effort to build a globally competitive investment manager over a long period of time.