The $2.2bn vehicle, which is a major force in the institutional world, has been remarkably consistent, also topping the 267-strong sector over one, three and six months. It has lagged its MSCI World benchmark over three years, but is ahead over every other time period.
Source: FE Analytics
A handful of healthcare funds have managed outperformance over all four time periods, but the core global funds that have consistently outperformed are few and far between. Standard Life TM International, Henderson Global Growth and F&C Institutional Global Equity are the only other funds that have managed the feat.
Headed up by FE Alpha Managers Andy Headley and Charles Richardson, the fund is a favourite with the team at Square Mile, and one of only three in the sector to receive an AA-rating. The team says it is one of the few that is genuinely benchmark-agnostic, investing more than 40 per cent of assets in its top 10 holdings.
A recent FE Trustnet revealed that there are few genuine high-conviction funds in the sector, which goes some way in explaining why such a small proportion has managed to outperform over the medium to long-term.
“This is a global equity fund with a difference – Veritas focus their efforts on providing clients with decent returns; they have no immediate concern about matching the returns of the wider market or about replicating exposures found in the benchmark,” Square Mile said.
“This results in a differentiated product that we feel should be of interest to many clients.”
Performance of fund, sector and index over 10yrs
Source: FE Analytics
The four-crown rated fund aims to achieve returns of global inflation plus 6 per cent per annum, and to exceed the returns of the MSCI World index. As well as consistently outperforming its peers and most certainly outperforming its benchmark over the longer term, Veritas Global Focus has been one of the least volatile in the sector – despite having a highly concentrated portfolio.
Our data shows that it has an annualised volatility of 12.42 per cent over the past decade, compared to 13.92 per cent for the index and 14.09 per cent for the sector.
The graph below shows that the fund is something of an anomaly; most of the top-performing global funds over the long term have taken on more risk than the sector, such as Skagen KonTiki. Those with a similar risk-profile are those with a healthcare or consumer goods focus.
Risk/return of Global funds over 10yrs
Source: FE Analytics
Richardson and Headley have an outstanding record during down markets, losing just 7.41 per cent compared to the sector’s 24.32 per cent fall in 2008, and making money in the down year of 2011. The fund is susceptible to underperforming during fast rising markets, but still managed double digit returns in 2005, 2006, 2009, 2010 and 2013.
“The fund will almost inevitably lag towards the end of a bull market when valuation metrics become too rich but one of the keys to the success of the strategy is the managers' ability to deploy cash reserves once valuations correct and become more attractive,” said Square Mile.
“Veritas applies a strict valuation hurdle and they will only consider purchasing stocks that can potentially provide 15 per cent per annum returns over a five-year period. Unsurprisingly only a very small proportion of companies meet all these criteria and therefore the portfolio is typically concentrated across 25 to 40 companies.”
“If a sufficient number of companies cannot be found cross the valuation hurdle, the managers accumulate cash.”
“Investors will require patience but the team have put together an enviable long-term track record that is significantly ahead of the World index.”
The strategy to build up cash when markets are expensive and then put it to work when share prices tumble is similar to that of CF Ruffer Equity & General – another sector-leading portfolio, this time in the IMA Flexible Investment sector.
The fund’s use of cash was particularly effectively in 2008, though the managers’ focus on quality companies with strong balance sheets has most certainly contributed. The fund will look to limit cash to 25 per cent of the portfolio. The figure currently stands at 10.8 per cent.
Square Mile adds that it likes the fact Veritas is a boutique and owned by its employees, which tends to result in a more cautious investment approach.
Veritas Global Focus is one of the more expensive funds in the sector, with ongoing charges of 1.15 per cent. It is domiciled in Ireland, and available on most major platforms.
