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More than 75% of global funds underperform over three and five years

20 August 2014

They have the world at their feet, but research shows that most IMA Global funds fail to outperform their benchmark.

By Daniel Lanyon,

Reporter, FE Trustnet

More than 80 per cent of funds in the IMA Global sector have failed to beat the MSCI World index over the past three years, according to research by FE Trustnet.

The funds have a wide appeal among investors as they offer a diversification away from the UK, but our data suggests that the vast majority of them are unable to add value to their benchmarks.

Of the 228 IMA Global funds with a long enough track record, 197 – or 83.8 per cent – have fallen short of the 63.07 per cent return of the MSCI World over three years.

The index is the natural benchmark for the sector, rather like the FTSE All Share is for IMA UK Equity Income.

However, even if the lesser-performing FTSE World index is included, just under 80 per cent of global funds have underperformed over the period.

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Source: FE Analytics

The picture only slightly improves for funds in the sector over five years. FE data shows that only 24.6 per cent of funds have beaten the MSCI World index over the period, with almost exactly the same proportion also beating the FTSE World.

The inability for funds to beat the benchmark is illustrated by the performance of the IMA Global sector average versus the FTSE World and MSCI World.

Over both three and five years, the average Global fund is around 15 percentage points behind the worst performing of the two indices.

Performance of sector and indices over 3yrs

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Source: FE Analytics


Over 10 years half of global funds have beaten the MSCI index while just over a third have beaten the FTSE World, although survivorship bias plays a much bigger over this longer-term period.

The sector average, which does include the performance of closed and merged funds, is again well behind the two indices.

Breaking down the performance, global funds have fared particularly badly in down markets. In 2011 for example, only 17 per cent of funds beat the MSCI World index.

Performance of sector and indices in 2011


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Source: FE Analytics

So far in 2014 only 11 per cent are ahead of the two indices.

Some of the most consistently underperforming funds in the IMA Global sector include the SVM Global Opportunities, SJP Ethical and Aberdeen Ethical World Equity funds.

There are exceptions to this rule of course, and in an upcoming article we will look at some of the funds in the IMA Global and Global Equity Income sectors that have managed to outperform their benchmarks consistently.

Global economic growth has boomed over the past decade. The stock market gains from the MSCI World index have beaten the FTSE All Share over both three and five year measures.

Investors keen to get exposure to higher growth areas, and also diversify away from typically popular funds, has led to an increase in popularity in global funds.

However, Mike Deverell, investment manager at Equilibrium, says lots of global funds are simply “closet trackers”.

Internationally-focused funds tend to be more expensive than those focusing on domestic markets, and Deverell says that fund managers – often based in London with questionable access to global companies – struggle to gain an edge.

“Two things that going to help you outperform are low charges and a high active share and in this sector they have high charges and a low active share, so expensive trackers are often what you get,” he said.

“For some reason fund groups can get away with charging higher charges for Global funds than the UK. Maybe they need to pay for their flights?”

ALT_TAG Deverell (pictured) says that managers’ unwillingness to make large regional bets also explains why they have struggled to add value.

“The other problem for funds in the sector is benchmarking. Approximately 80-90 per cent use the MSCI World as their benchmark which is at least 50 per cent US equities, so what you are buying is the US with a bit of other stuff.”

“You find that a lot of funds won’t deviate from that benchmark and that is a big problem. You can find it in other sectors too such as those using the FTSE All Share as a benchmark.”

“All the research suggests that your regional allocation and asset allocation make more of a difference to total return than fund selection. If you think a certain region looks cheap you may want to overweight that region, which is one way you could add value.”


Our data shows that more than half of funds in the sector have at least 40 per cent in North American equities while a third have more than 50 per cent exposure.

While there is a much smaller pool of funds to analyse, the picture is even bleaker in the IMA Global Equity Income sector.

Only two of the 24 funds in the sector – or 8 per cent – with a long enough track record have outperformed both indices over three years, with the figure rising to 23 per cent over five years.

For those wary of actively managed Global funds, we will look at some of the passive funds that give investors access to international markets.

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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.