Numerous studies by FE Trustnet have shown that global funds tend to find it difficult to consistently outperform the market, given the vast scope of investment opportunities on offer and the dominance of the highly efficient US market in the index.
In 2014, for example, we found that more than 80 per cent of IA Global funds had failed to beat the MSCI World over three years while the picture was even worse when it comes to equity income funds with a global remit.
Last week, we looked at the IA UK Equity Income sector to see which funds have posted higher three-year returns than the FTSE All Share and found that 11 have done so – or 16 per cent of those with a long enough track record. Names such as Royal London UK Equity Income, Unicorn UK Income and Schroder UK Alpha Income appeared the list.
We’ve now done the same with the IA Global sector: filtered for all the funds with a long enough track record to discover which were ahead of the MSCI AC World in every month on a three-year view over the past three years.
Admittedly, this is a very difficult feat to accomplish. In fact, it’s closer to an absolute return fund’s target rather than a global equity one’s and this is reflected in how few portfolios have managed to achieve it.
Our data shows that just over 5 per cent of the IA Global sector remained after the filter was run. Looking at which ones have posted the highest total return over the three years covered by the research shows both focus on one niche area of the market.
Source: FE Analytics
Over the past three years, the MSCI AC World has made a total return of 48.32 while the average IA Global fund has failed to match this with a gain of just 42.29 per cent. Global healthcare stocks, on the other hand, have surged with the MSCI ACWI Health Care index rising 103.42 over this time frame.
As the table on the previous page shows, it’s a tracker that leads the pack when it comes to never lagging global equities over three years. L&G Global Health & Pharmaceutical Index tracks the FTSE World Health & Pharma index and currently is the best performing fund in the IA Global sector over three and five years as well as being the second best over 12 months.
The strong run in healthcare is reflected in the second highest returning fund over three years – John Bowler’s Schroder Global Healthcare. The three FE Crown-rated fund is just behind the L&G tracker in the sector overall, being the second performing fund in the sector over three and five years and the third best over one year.
Healthcare is the largest sector allocation in the highest performing non-specialist fund uncovered by our research. Ian Heslop’s four crown-rated Old Mutual Global Equity fund has 17.6 per cent in healthcare, compared to its MSCI World benchmark’s 13.32 per cent, with companies like Gilead Sciences, Amgen, Novo Nordisk and Biogen Idec featuring in its top 10 holdings.
Performance of funds vs index over 3yrs
Source: FE Analytics
The fund, which also has Amadeo Alentorn and Mike Servent as named managers, has more than 500 holdings and makes use of a wide range of metrics when building the portfolio, such as looking for shifts in analyst sentiment, company managements’ decision-making records and sustainable growth.
FE Analytics shows Old Mutual Global Equity has had higher maximum drawdown, maximum loss and annualised volatility scores than its average peer over the past three years. However, its maximum gain of 41.37 per cent is twice that of the sector and index while risk-adjusted returns as measured by the Sharpe ratio have been higher than both at 1.66.
When it comes to ratings, the MFS Meridian Global Concentrated fund stands out from the 10 on the list of consistent monthly outperformers. It holds the maximum FE Crowns for superior performance in terms of stockpicking, consistency and risk control over the past three years.
It also has FE Alpha Manager Roger Morley running the portfolio with David R Mannheim, Ben S Kottler, Sanjay Natarajan, Rina Jha and Victoria Higley. In contrast to the Old Mutual fund, and as it name suggests, the fund takes a concentrated approach to global equities and has just 25 holdings.
More than 70 per cent of the portfolio is in large cap names with Walt Disney, Visa, Time Warner and Reckitt Benckiser featuring in its top 10, which accounts for close to half of the fund’s assets. This large-cap bias has helped the fund to post a lower maximum drawdown and maximum loss than its peers and benchmark over three years, although it has been more volatile.
Performance of fund vs index over 3yrs
Source: FE Analytics
When the same filter was run over the much smaller IA Global Equity Income sector, no funds remained that have delivered higher three-year returns than the MSCI AC World index in each month of recent years.