It’s for this reason that I’ve been allocating more to regional funds over recent years, as I think the scope of focus is small enough for a manager’s experience and expertise to really shine through. I’ve been buying Japan and Europe for some time now, but now have to look for a global fund for my SIPP.
In my ISA and workplace pension, a large proportion of my global exposure comes through index trackers - Vanguard LifeStrategy 100% Equity in my ISA and Scottish Widows State Street International Equity Index in my pension.
For active exposure there’s a decent weighting to James Thomson’s Rathbone Global Opportunities fund in my ISA, as I rate the FE Alpha Manager’s stock picking skills across the cap spectrum and the approach he brought in after a difficult run in 2008. In my pension, I have Invesco Perpetual Managed, which gives exposure to the firm’s regional funds.
However, I now looking for a core global fund for my SIPP. In previous articles, I explained why my SIPP started off with 100 per cent in the Invesco Perpetual Global Targeted Returns fund and how I choose CF Lindsell Train UK Equity as my second core holding. Next up is deciding on the core global fund and then I have my final - but biggest - task of choosing the satellite thematic funds.
At the end of my previous article I asked for suggestions on funds to consider filling the global core role - thanks to those of you who offered the managers you’d think would make a good fit, they were all names that were worth considering.
In the interests of space, I’d like to quickly explain why I ruled out some of these excellent funds: Lindsell Train Global Equity, as there’s significant overlap with CF Lindsell Train UK Equity’s major holdings; F&C Investment Trust, as I don’t want the transaction fees that would come with investing in trusts monthly; Newton Global Higher Income as I’m not a fan of funds using strict yield criteria; and Invesco Perpetual Global Smaller Companies and Standard Life Investments Global Smaller Companies as I don’t want to restrict myself to this part of the market.
So the funds I have to consider are Artemis Global Income, Fundsmith Equity and Standard Life Investments Global Equity Unconstrained. Each one of these has plus points and negatives.
First up is Jacob de Tusch-Lec’s Artemis Global Income fund, which has established an excellent track record since launch in September 2010. It’s the highest returning fund in the IA Global Equity Income sector since then with a 102.76 per cent gain and is currently top decile over one and three years.
Performance of fund vs sector and index since launch
Source: FE Analytics
Aside from past performance - which as we know, is no guide to future returns - there are several things I like about the fund. Firstly, I’ve met de Tusch-Lec (pictured) several times and have confidence in him; secondly, his blend of stock picking and macro analysis has worked so far; and thirdly the portfolio looks beyond the usual mega-cap names while having little exposure to the UK.
On the negative side, asset growth has been rapid over recent years - the fund was just £89m at the start of 2013, grew to £525m by the end of the year and is now approaching £1.7bn - as highlighted by FE Trustnet in a recent article. In addition, de Tusch-Lec has yet to steer the fund through a bear market, which is something I’d ideally like to see, and has been one of the most volatile performers in the sector since launch.
In many ways, Terry Smith’s £3.2bn Fundsmith Equity fund is likely Nick Train’s CF Lindsell Train UK Equity as the five FE Crown-rated portfolio holds a concentrated number of businesses that have already proved themselves to be winners in their respective fields.
Performance of fund vs sector and index since launch
Source: FE Analytics
This approach has worked - since launch it’s made 101.18 per cent compared with an average IA Global gain of 41.53 per cent and a rise in the MSCI World of 61.52 per cent. Furthermore, at 4.55 per cent its maximum drawdown is far lower than the peer group or index and it’s one of the least volatile in the sector.
Smith also seems committed to delivering value for money to his clients; Fundsmith’s whole approach is based around not trading too much and saving investors from overly high ongoing charges.
On the downside, this is another fund that has yet to go through a bear market - although it did manage to make a 7.81 per cent return in the down year of 2011 after positions in Domino’s Pizza, Philip Morris, Imperial Tobacco, Colgate Palmolive and Unilever paid off. It’s also been the most popular fund in its sector with investors over the past year and in general I try to avoid herd investing.
Standard Life Investments Global Equity Unconstrained has been managed by Mikhail Zverev since September 2010, over which time it has returned 86.05 per cent. The IA Global sector, which is also its benchmark, has made an average return of 59.17 per cent over this time.
Performance of fund vs sector over manager tenure
Source: FE Analytics
I’m a fan of Standard Life Investments’ unconstrained philosophy, which allows their managers to craft portfolios without referring an underlying benchmark. Zverev’s largest holding, for example, is video game developed Electronic Arts while the fund has a quarter of its portfolio in mid-caps with another 5 per cent in small-caps.
However, over the past four years this fund has delivered the lowest return of the three products examined here, while being the most volatile and having the highest maximum drawdown. It also has the lowest Sharpe ratio, which measures risk-adjusted returns.
So, after much deliberation, which did have I chosen? Even though I think any of the above would serve me well, I’ve gone for Artemis Global Income.
Part of me wishes it wasn't so popular and the fund's growth is something I'll have to keep an eye on. But I don't think it's anywhere near the point where de Tusch-Lec's ability to run his portfolio is being compromised by its scale.
As for the untested in a bear market point, again, this is where I have to make somewhat of a leap. It did underperform its peers in the down year of 2011 and is more volatile than some global equity income offerings out there. But I have a 30-year horizon so I don't mind putting up with higher volatility and even a severe market event over this time, so long as de Tusch-Lec can run the money as he likes.
What I find attractive is the equity income approach, which will allow me to benefit from the compounding power of dividends over time, and the fact the manager tends to avoid the UK, as this will prevent too much overlap with CF Lindsell Train UK Equity.
I’m fully aware that the fund is not guaranteed to keep its recent level of outperformance but I think de Tusch-Lec’s approach to investing will be able to navigate various market conditions and deliver attractive returns over the long term.
Now my core is in place - Invesco Perpetual Global Targeted Returns, CF Lindsell Train UK Equity and Artemis Global Income - I next have to decide on the thematic funds that will become the satellites. Over the next few weeks and in a coming article, I’ll be looking at specialist areas such as healthcare, technology and ecology to see where attractive long-term gains could be had.
