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Funds for downside protection: Global growth

04 March 2014

In the next article in the series, FE Trustnet looks at the global funds likely to protect the best if the Ukraine crisis causes a prolonged sell-off.

By Thomas McMahon,

News Editor, FE Trustnet

The Ukraine crisis reminds us how important it is to retain defensive funds in your portfolio no matter how positive the news-flow seems.

A few weeks ago the markets may have been stuttering but the economic news was good, and the debate was over whether to expect 10 per cent from equities this year or more.

The bears were reminding us that the eurozone crisis could bounce back onto the agenda and warned over slowing growth in emerging markets, but no one foresaw the political crisis in Ukraine and an effective occupation of the Crimea by Russia.

FE Trustnet looked at the possible consequences for your portfolio in a story this morning.

Each crisis is different, however, and it is important to look at how funds react each time markets correct rather than simply looking at their volatility scores or other metrics over a period of time.

There have been two significant market corrections since the 2008 crisis, one in 2011 and one last year, and our data shows very different funds protected effectively in each situation.

Between 7 July 2011 and 19 August 2011 the average fund in the IMA Global sector lost 17.28 per cent as the MSCI World index lost 19.13 per cent.

Performance of sector and index in 2011 correction


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Source: FE Analytics

According to our data, the £240m S&W Kennox Strategic Value fund protected investors the best over that period, returning 5.67 per cent.

The portfolio is a highly concentrated selection of equities chosen for exhibiting “deep value” characteristic, that is to say it buys them when they are cheap, at a low point in their earnings cycle and there is very little chance of further share price depreciation.

The fund also holds 2 per cent in gold and currently has as much as 17 per cent in cash.

Performance of fund vs sector and benchmark over 3yrs

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Source: FE Analytics


The fund has a strong track record of outperforming in bear markets and underperforming in bull markets, and our data shows it has slipped behind the sector and index over three years after the recent up period.

The fund has the lowest volatility of the 218 constituents in the sector over that time, of 8.2 per cent, and is also top quartile in terms of Sharpe ratio.

The fund did marginally better during this period than the £82m Trojan Capital fund, run by Gabrielle Boyle. Boyle took over just after the period in question, however.

The portfolio is less well known than the Trojan Income fund, but has a similar focus on capital preservation.

It is another with single-digit volatility over the past three years, and also has a top-quartile Sharpe ratio.

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Source: FE Analytics

The Morgan Stanley Global Brands fund also features high on the list, having lost just 9.53 per cent in the 2011 sell-off. The fund buys blue chip equities with defensive characteristics, and these portfolios were in strong demand at the time. It has since soft-closed.

However, this sort of fund didn’t do so well in the sell-off last year.

Between 21 May 2013 and 24 June, the MSCI World index fell 9.23 per cent and the average fund in the global sector lost 8.32 per cent.

The Morgan Stanley Global Brands fund lost 7.62 per cent, second quartile returns for the sector.

Surprisingly, the best-performing fund in this period was Standard Life Global Smaller Companies.

Smaller companies are reputed to be more volatile than larger ones, although this isn’t always the case.

The Standard Life Global Smaller Companies fund is in the second quartile of the largely large cap sector, with a two-year volatility score of 10.59 per cent.

The fund lost only 4.26 per cent in the 2013 sell-off, and our data shows it has been top quartile since launch in January 2012, with returns of 49.98 per cent.

Performance of fund vs sector and index since launch

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Source: FE Analytics

We previously showed that smaller companies funds did particularly well in the 2013 sell-off within the UK thanks to being less exposed to international trade. The same pattern seems to be evident in the global sector.

The institutional Baillie Gifford Phoenix Global Growth fund, which did well in the sell-off, also has significant small cap exposure.


Henderson Global Growth
, run by Ian Warmerdam, lost only 4.89 per cent in the sell-off.

The fund has more than a third in technology, and this seems to have helped it in a period when technology stocks were less affected than the sectors exposed to China and emerging markets demand.

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Source: FE Analytics

Douglas Brodie’s Baillie Gifford Global Discovery fund is another to have done very well from investing in technology.

In previous articles in the series,
FE Trustnet has looked at UK Equity Income, Global Equity Income and UK growth funds.
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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.