Foord Umbrella Provident Fund — A Thousand-Bagger Investment

The Foord staff provident fund in which all Foord employees invest was started in April 1987 as the brainchild of the then Foord & Meintjes principals, Dave Foord, Liston Meintjes and Mark Hodges. The contribution rate was a modest 10% on the expectation that employees should contribute more, where possible.

The fund was managed by Foord as a segregated portfolio from its genesis until late 2005, when the portfolio was transferred into the Foord Balanced Fund unit trust. Staff retirement monies have been co-invested with Foord’s other investors in that product ever since.

The fund is separately unitised at each calendar month end. It’s starting unit price on 1 April 1987 was just one rand. On 30 November 2022, the unit price ticked over the one-thousand-rand mark to R1,008.

This is one-thousand times the starting price of 35 years ago, resulting in a total return on those very first units of one hundred thousand per cent, after fees and fund expenses. The average annualised return over the term is 21.3% per annum when inflation has averaged 7.2%. This is an exceptional achievement that demonstrates the power of compounding superior long-term returns.

There are real-people stories behind these numbers:

• Receptionist Carolyn Bywater (who has previously approved the use of her investment as an example of the power of compounding) was employed by Foord between May 1987 and December 1989 before family commitments intervened. Her first units were bought at R1.03 and her contributions of just R8,545 had grown to R18,145 by her resignation date. She has been a deferred member of the fund for 33 years. Her R18,145 benefit is today worth R4.7 million. It remains invested in the fund.

• An operations specialist was employed from 1991 to 1996, contributing R63,328 in basic 10% contributions while matching this with additional 10% contribution and the odd ad-hoc contribution for a total contribution of R191,390 by the end of 1996. Today that investment has compounded to R13.28 million. It remains invested in the fund.

There are several important lessons contained in this result other than the obviousness of Foord’s 40-year longevity. Foremost is that when it comes to compounding, it is important to avoid negative returns and then to compound for as long as possible. The adage that its ‘time in the markets, not timing the markets that counts’ is all too true.

For the early investors in the fund, their first units continue to play a significantly greater role in growing their retirement savings than their more recent contributions — even when made on salaries that are orders of magnitude larger than their salaries of yesteryear. So, start saving as early as possible.

Secondly, this outcome would not have been achieved if the fund had switched investment managers every couple of years. Foord has a safety-first, value-driven investment philosophy. There are often long periods where its strategy underperforms managers that are heavily invested in the go-go investments of the day. Certainly, the Foord Provident Fund’s investments have suffered the same bouts of below-par returns from time to time as Foord’s other investments. But staying the course has rewarded the fund members as fads have faded.

Thirdly, long investment horizons deserve appropriate risk budgets. Workers saving for retirement are amongst those with the longest time horizons. These investors can absolutely afford to incur investment volatility in the pursuit of superior long-term returns. This includes staying invested through market cycles. Investments into artificially constrained products such as medium or low equity solutions are not appropriate for long time horizons.

Finally, it is possible to achieve meaningful inflation-beating returns despite adverse regulatory or fiscal interventions. The Foord Provident Fund’s track record variously includes periods of prescribed assets, a ban on foreign investments, constraints on equity exposure and some years of retirement fund taxation. In our view, these have been a drag on performance outcomes. However, it is still better to compound retirement savings despite these adversities than not to invest at all.

Congratulations to the portfolio managers on this account over the 35 years for safely delivering these eye-popping outcomes — and to those wise employees who let their capital compound over the years. Let this be a lesson to us all.