Our data found that more than 75 per cent of global funds underperform the MSCI World index over three and five years.
Mike Deverell, investment manager at Equilibrium, says that high costs have made it increasingly difficult for global managers to have an edge.
The case for exposure to global equities is strong, according to Deverell, especially as a diversification from UK equities. However, he says there is little point in paying higher charges for “closet trackers.”
Here we look at three low-cost trackers offering global equity exposure.
Unsurprisingly, they’ve outperformed the majority of their active rivals and have significantly lower fees.
Fidelity Index World
This £59m fund, which was launched in December 2012, is one of the cheapest ways of getting exposure to international markets, with clean ongoing charges of 0.2 per cent.
It has returned 30.96 per cent since its launch, falling just 0.52 percentage points behind its MSCI World benchmark.
The fund has beaten 188 of the 248 funds in the IMA Global sector with a long enough track record over the period.
Performance of fund, sector and index since Dec 2012
Source: FE Analytics
The fund has beaten some well-known and larger funds over this period including the likes of AXA Framlington Global Opportunities, CF Odey Opus, Investec Global Special Situations, and JOHCM Global Opportunities.
The MSCI World index is invested almost exclusively developed market countries, so investors looking for exposure to emerging markets will have to look elsewhere.
Fidelity Index World’s largest regional exposure is to North America, which has a 59.1 per cent exposure.
The next largest is Europe ex UK with 14.3 per cent exposure, followed by the UK with 8.8 per cent.
Invesco Perpetual Global Core ex UK Equity Index
One of the biggest draws of investing in a global fund for UK investors is to diversify away from their domestic market.
If you’re looking for true diversification, this £40m fund offers exposure to developed markets excluding the UK.
Over the past five years it has beaten three quarters of funds in the IMA Global sector, returning 83.46 per cent compared to the sector average’s 65.24 per cent.
Its benchmark, the MSCI World ex UK index, has gained 83.18 per cent over the same period.
Performance of fund, sector and index over 5yrs
Source: FE Analytics
The fund keeps an almost constant regional exposure.
Just over 60.81 per cent is invested in North America, 23.48 per cent is in Europe ex UK, 11.95 per cent in Japan and 4.63 per cent in Australasia.
Invesco Perpetual Global Core ex UK Equity Index has an OCF of 0.7 per cent.
While the returns of the Invesco fund have been close to the index, the tracking error has been relatively high, at 6.82 per cent.
The Vanguard FTSE Developed World ex UK Equity Index tracker doesn’t have as long of a track record, but its tracking error has been much lower compared to its FTSE Developed World ex UK benchmark – consistently below 1 per cent.
It is also cheaper, charging an OCF of 0.3 per cent.
The benefit of full replication – which is used by Vanguard trackers – was highlighted in a recent FE Trustnet article.
Vanguard Global Small Cap Index
If you’re looking for something a bit racier, Vanguard is one of the very few fund or ETF providers that give investors access to global small caps.
Vanguard Global Smaller Cap Index invests exclusively in developed countries.
The $699m fund has returned more than 89.9 per cent of funds in the IMA Global sector over three years, putting it almost 20 percentage points ahead of the sector average.
It has returned 68.9 per cent compared to a 69.47 per cent gain for the fund’s benchmark – the MSCI Global Small-cap index.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
The fund has the lowest tracking error compared to its benchmark of any fund in the sector, at 0.18 per cent.
It has an OCF of 0.4 per cent.
