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Cape Town - Foord Compass, the debenture-based investment company, appears to be backing equities for 2010.
Results for the year to end-December 2009 showed Foord Compass holding the biggest chunk of its R1.14bn investment portfolio in equities.
At the interim stage (to end-June) last year Foord Compass still held a very conservative position with the biggest portion of its portfolio retained in cash.
The portfolio breakdown at year-end, however, reflected an equity position of 77% (53% local and 24% offshore) compared with only 43% in the interim period ending June 2009.
A shift into equities is significant because the Pinelands-based company has largely built its reputation on offering debenture holders a mix of low risk capital growth with steady income streams.
Foord Compass did retain fairly heavy weightings in corporate debt (24%) and cash (34%), and also kept small positions in listed property (9%) and commodities (2%).
While the total portfolio holding adds up to far more than 100% the company's "short" position in bonds (-46%) also needs to be taken into account.
Chairperson Mark Hodges said the short-term outlook for equity markets seemed positive as most economies emerged from the "great recession".
"We expect corporate earnings to improve, which should lead to increased dividend pay-outs."
Hodges said interest rates were likely to rise and that the timing of this was a key risk for investment markets.
Given the massive size of the global stimulus packages, which will need to be withdrawn, the risk of a "double dip" recession has not abated.
He said record budget deficits and government debt levels would be negative for the bond markets in the longer term.
Hodges stressed that while Foord Compass currently placed an emphasis on equities, risk management and capital preservation remained as the most important focus areas.
For the year under review Foord Compass reported a total return of 16.2%, which is ahead of its benchmark of inflation plus 10%. Capital (or portfolio) growth was 4% while another 12% was garnered from income.
The net asset value (NAV) as at the end of December 2009 was reflected as 713c (excluding the 44c/debenture final distribution). The full-year pay-out was 11% down at 83.6c/debenture (93.8c/debenture) - mainly due to lower dividends received and lower interest rates.
- Fin24.com
