Foord Asset Management\u2019s CIO\u00a0Dave Foord believes the current environment where interest rates are below the inflation rate is a \u2018disaster\u2019 because it results in misallocated capital.<\/p>\n
He expressed this view during a Nedgroup Investments webinar this week.<\/p>\n
Foord co-manages the R20.5bn\u00a0Nedgroup Investments Stable fund\u00a0with Citywire + rated duo\u00a0William Fraser\u00a0and\u00a0Nick Balkin.<\/p>\n
\u2018Runaway inflation is something we need to deal with,\u2019 Foord said. \u2018We handle that by avoiding assets that don\u2019t do well with inflation and buying assets that do well amid inflation. Equities that have pricing power are the place to be.\u2019<\/p>\n
Inflation is a worry for long-term investors and savers, he added, and, given the amount of free money available globally, it is surprising the world had not seen a significant increase already.<\/p>\n
Deflationary forces<\/strong><\/p>\n There are, however, clear reasons for this.<\/p>\n \u2018What are the deflationary forces that we see out there? Firstly, China\u2019s efficiency in creating cheap goods. Secondly, production efficiency, which is partly the result of scientific advances. Thirdly, technological advances from computerisation have permeated worldwide and corrected deficiencies in many industries.<\/p>\n \u2018So forces of disruption come together to subdue inflation,\u2019 Foord said.<\/p>\n \u2018Fourthly, the rate of population growth around the world has slowed somewhat. Finally, I would add a fifth factor, and that is the rich and poor divide has meant that demand from the middle classes is not growing as much as it used to.\u2019<\/p>\n Benign inflation<\/strong><\/p>\n Foord questioned whether the US Federal Reserve would end up increasing US interest rates in a \u2018too little too late\u2019 fashion.<\/p>\n \u2018The Fed has made it very clear that they will not increase interest rates because they fear the consequences of disrupting the economy and what it does for jobs,\u2019 he said.<\/p>\n \u2018The Fed and governments err on the side of inflation and allow it to rise because it suits them compared with the alternatives. Of course, they will not tell everybody that, but the signs are there,\u2019 he added.<\/p>\n Disruption creates opportunities<\/strong><\/p>\n Away from the topic of inflation, Foord said he was excited about the state of world markets and the investment opportunities created by disruption.<\/p>\n \u2018There is so much disruption, which is an opportunity to make and lose money,\u2019 he said.<\/p>\n Significant change was apparent in many aspects of life, he added, including the cost of borrowing money, ways of working, the property sector, jobs in many industries, technology, the pharmaceutical industry and power production.<\/p>\n The pressure to be more environmentally friendly was also threatening the oil industry, he said.<\/p>\n \u2018Oil is becoming a dinosaur industry. You need to spot the dying industries and look for the growing industries.\u2019<\/p>\n The Nedgroup Investments Stable fund returned 8.2% in the year to the end of April compared with 7.3% for the fund\u2019s benchmark, which is inflation plus 4% over three-rolling years. Over three years, the fund returned 8.0% versus the benchmark return of 8.1%.<\/p>\n","protected":false},"excerpt":{"rendered":" Foord Asset Management\u2019s CIO\u00a0Dave Foord believes the current environment where interest rates are below the inflation rate is a \u2018disaster\u2019 because it results in misallocated…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-709","post","type-post","status-publish","format-standard","hentry","category-innov8ions"],"_links":{"self":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/709","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/comments?post=709"}],"version-history":[{"count":2,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/709\/revisions"}],"predecessor-version":[{"id":711,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/709\/revisions\/711"}],"wp:attachment":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/media?parent=709"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/categories?post=709"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/tags?post=709"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}