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Volatility returns: Global funds that work in up and down markets

12 October 2014

FE Trustnet uses the bull/bear ratio to look for global funds with the potential to capture upside in markets while offering downside protection.

By Gary Jackson,

News Editor, FE Trustnet

Global markets have just finished a tough week, with equities around the globe dropping on the back of fears over Europe’s economic health, the spread of the Ebola virus and the conflict against Islamic State in the Middle East.

FE Trustnet has already highlighted several UK equity funds
that could be good options for investors unsure about the direction of markets, using the bull/bear ratio.

In this study, we look at three funds from the IMA Global sector which could protect on the downside while having the potential to capture any upside.

The bull/bear ratio is derived from a fund’s bull beta, which is a measure of sensitivity of performance relative to upswings in the benchmark, and its bear beta, which measure a sensitivity to downturns.

A bear/bull ratio greater than one indicates better ability to ride the upswings in the market and less risk in the down markets.

Bull beta of more than one suggests a fund will beat the market when it’s rising while bear beta below one indicates it will fall less in a downturn.

The global fund with the highest bull/bear ratio is Ian Warmerdam’s £314.8m Henderson Global Growth fund, with a score of 1.34 over the past 10 years.

At 0.75, its bear beta is one of the lowest in the sector while its bull beta stands at 1.01.

Henderson Global Growth is currently first quartile over one, three and five years as well as over three and six months. Over five years it has returned 95.24 per cent, compared with a peer group average of 45.34 per cent.

Performance of fund vs sector and index over 3yrs

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Source: FE Analytics

The fund’s volatility over 10 years is 17.86 per cent, which is lower than the MSCI AC World index’s 16.59 per cent.

Its maximum drawdown, which shows the amount an investor would have lost if they bought at its peak and sold at the trough, is 35.43 per cent, compared with the index’s 38.87 per cent.

Almost 70 per cent of the portfolio is invested in the US, while 5.2 per cent is in the UK. Germany accounts for 5 per cent, Ireland for 4.1 per cent and China 3.5 per cent.

Some 31 per cent of the portfolio is in information technology - Warmerdam’s area of expertise, as he is director of technology investment at Henderson.

It also has 29.7 per cent in consumer discretionary stocks and 18.2 per cent in healthcare, with Gilead Sciences its largest holding.

Henderson Global Growth has a clean ongoing charges figure (OCF) of 0.85 per cent. The £24.7m Royal Bank of Scotland International Growth fund, which is managed by Michael Jennings and Richard Saldanha, has a bull/bear ratio of 1.15, with bull beta of 1.10 and bear beta of 0.96.


The fund is second quartile over one, three and five years, returning 50.82 per cent over five years against the sector’s 45.34 per cent.

Over the year to date it has gained 3.89 per cent, more than double the return of the average IMA Global fund.

Performance of fund vs sector and index over 3yrs

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Source: FE Analytics

It has a lower maximum drawdown than the MSCI AC World index at 36.20 per cent for the last 10 years, but it is slightly more volatile than the index at 16.78 per cent.

It also has a lower maximum loss than the MSCI, along with a lower maximum gain.

In terms of positioning, 58.3 per cent is invested in the US. Another 17.3 per cent is in developed Europe, 12.6 per cent is in the UK, 9.4 per cent is in Japan and 1.2 per cent is in Australia and New Zealand. Its largest sector bet is to financials while Apple is the top holding.

Royal Bank of Scotland International Growth has an OCF of 1.57 per cent.

Ian Vose's £646m Investec Global Dynamic fund has a bull/bear beta of 1.10 per cent. Its bull beta is 1.05 while its bear beta has been 0.95 per cent over the past decade.

It is currently sitting in the sector’s second quartile over one, three and five years.

The fund did a decent job of protecting investors’ money in the down year of 2011, with a loss of 6.03 per cent - the average fund in the IMA Global sector lost 9.27 per cent while the MSCI AC World dropped 6.66 per cent.

Performance of fund vs sector and index over 3yrs

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Source: FE Analytics


There is a focus on mega and large caps with just 12 per cent in mid-caps and nothing in the small and micro parts of the cap spectrum.

Its largest holding is computer game giant Activision Blizzard, followed by Moody's and Itau Unibanco. Again, its largest geographical weighting is to the US at 48.2 per cent.

Some 19.1 per cent is in Europe and 10.4 per cent in emerging markets, while just 6.1 per cent is in the UK, which may be attractive to investors looking to global funds to diversify away from domestic exposure.

However, the fund has been more volatile than the index over the past 10 years with FE Analytics showing its volatility as 18.98 per cent.

Furthermore, its maximum drawdown over the period was 42.33 per cent. Investec Global Dynamic has a clean OCF of 0.87 per cent.

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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.