The fund, which is available direct and is in the process of being put on a number of platforms, is a mirror version of the firm’s sister company Guinness Atkinson, headed up by Ian Mortimer and Matthew Page.
According to FE data, the $171m fund has returned 178.17 per cent over the past decade, compared to 102.52 per cent from the MSCI AC World index.
This puts it fourth in the 1,837-strong Offshore Mutual International sector, with no US-domiciled fund coming close to matching its return.
Performance of fund and index over 10yrs
Source: FE Analytics
The fund is second overall over five years with returns of 112.05 per cent and 13th over three years with 77.25 per cent.
Guinness Global Innovators will sit in the IMA Global sector. It’s a top decile performer over all three periods, second only to the L&G Global Health & Pharmaceutical Index tracker over five years, for example.
It is a high conviction fund of only 30 stocks, which Mortimer says has an active share of over 95 per cent.
An FE Trustnet study recently showed that the vast majority of global funds have struggled to add value over the medium to long term, with experts saying too many are overly concentrated and quasi-trackers.
Having a high conviction portfolio, Mortimer says, is the only way to add consistent value.
As the fund's name suggests, the managers attempt to find innovative companies with an edge over their rivals.
These companies, the managers say, have a better chance of delivering a high return on capital, thus outperforming the market in share price terms.
Historically, the emphasis on innovative companies has led to a high tech weighting.
The fund continues to have an overweight position, at around 30 per cent; however since Mortimer and Page took over from Tim Guinness in 2010 the weighting has come down from a high of 50 per cent.
"This is certainly not a tech fund," said Mortimer. “It is not compared to a tech index and we don't look at other tech funds in comparison."
"To be innovative doesn't mean you have to be changing the world with technology. We're looking at all types of innovation. Some of that is tech-based, but it's also about companies with innovative products and business models."
As an example, the fund held a position in Netflix between 2007 and 2011, which Mortimer describes as “one of his best ever investments”.
Internet streaming was by no means invented by the company, but Mortimer says its business model and revenue stream allowed it to take significant market share from its competitors.
The high tech weighting has contributed to the fund being more volatile than the index over the long term. It lost significantly more in 2008, for example.
However, since the new team has taken over, the difference in volatility has subsided and the fund performed more in line with the market in the down year of 2011.
Performance of fund, sector and index over 5yrs
Source: FE Analytics
The Guinness fund invests predominantly in large caps, with Mortimer (pictured) explaining that the team only consider companies with a market cap of over $500m.
The median sized holding is currently around $30bn. It avoids start-ups, deeming them too risky and illiquid, as well as mature companies with moderate growth potential. Instead, they look for those in the 'growth' and 'maturing' stage.
The process starts by identifying companies that differentiate themselves from their peers, with the managers using third-party endorsements such as Forbes and MIT.
Next, they use a quantitative screen to make sure the companies have achieved a consistently high return on capital over an entire business cycle.
"We're looking for those that have achieved a 12 per cent return on capital for the last 10 consecutive years," he said.
"On aggregate, this suggests for us that they have generated value for shareholders and are committed to doing so."
"Those that have done this on average have a 95 per cent chance of delivering 12 per cent again the year after and an 80 per cent chance of doing so for the next four years. This is a great starting point."
Mortimer and Page then put the companies through a momentum and value screen, picking the 30 companies they have the highest conviction in.
"A lot of the companies we screen are very expensive, but that has dangers," he said. "It means that the company has to deliver extraordinary growth, and any disappointment can be painful."
"Sometimes these companies deliver, but we are fine missing these opportunities."
He highlights Tesla Motors as one that has so far justified its high multiples, but ASOS as a good example of what can happen when a company gets too expensive.
Performance of stock and index over 5yrs
Source: FE Analytics
"On the balance of probabilities [extremely expensive companies] are best off being avoided," he said.
Mortimer thinks the biotech sector, which has had a tremendous run of late, could fall victim to a decline given where valuations are for certain companies.
"It’s getting to the stage where investors are paying up for a product that they don't know will actually come to market,” he said.
“Some are in phase two of development, and still need to go to stage three and then come to market. It’s basically impossible to price them – at least you can price Twitter and Facebook."
The portfolio does trade at a premium to the market, but only by a fraction, which Mortimer says is unusual for a fund with such a focus.
The fund is currently trading on a P/E of 14.5 times, compared to 14.1 from the MSCI AC World.
Guinness Global Innovators has a total expense ratio of 1.47 per cent, but this is subject to change when it becomes available on platforms.
Mortimer and Page also run the Guinness Global Equity Income fund, recently tipped by fund of funds manager Steven Richards as the first name of the teamsheet when he constructs portfolios.
