Founders Fund

December 31, 2018

Fund Overview

  • The Founders Fund is a balanced fund with a target asset mix of 60% stocks and 40% fixed income. It gains this exposure from investing in Steadyhand’s other 5 funds.
  • Tom Bradley manages the fund and Salman Ahmed is co-manager. They have considerable scope to adjust the portfolio to reflect their views on valuations, corporate fundamentals and investor sentiment.

Looking Back

  • The fund posted a loss of 4.9% in 2018, driven mainly by the performance of the equity funds which were all down on the year.
  • The fund started the year with 54% in stocks, 6% below our long-term target. Our analysis led to the conclusion that equity markets had gotten ahead of themselves. Equity investors were being too optimistic about the profitability of companies and our managers weren’t finding new investment opportunities. Though the fund wasn’t immune to the volatility in the second half of 2018, the conservative positioning helped protect investors somewhat.
  • Bond returns were modest in 2018, though bond prices rose sharply late in the year as stock markets started to slide. We have long been of the view that near-zero interest rates are unsustainable. Thus, the fund’s fixed income allocation has been split between bonds (Income Fund) and cash & short-term notes (Savings Fund).

Looking Ahead

  • Investors are reassessing growth prospects for the global economy and the resulting future profitability of companies. As a result of this and other factors, equity markets around the world have experienced sharp declines over the last three months.
  • Watching portfolio values fall is unpleasant to say the least. That said, it also improves the outlook for future returns as stock prices today are far more reasonable than they were just a few months ago. We’ve increased the fund’s allocation to stocks in line with its long-term target (60%) and the managers of our equity funds have found new investing ideas. Investors can expect the stock weighting to increase further if stock prices continue to fall.
  • Bonds, however, have become less attractive. Yields decreased in the fourth quarter and there is less of an advantage in holding bonds compared to cash-like investments (Savings Fund). Yet, they still provide protection against stock market declines. During the recent fall in stock prices, government bonds increased in value. Bonds account for 29% of the Founders Fund, 6% less than its long-term target.