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Highly rated global funds for the strong-stomached investor

11 May 2015

Data from FE Analytics reveals four global funds that have topped the performance tables despite being much more volatile than their peers over the bull run of the past five years.

By Lauren Mason,

Reporter, FE Trustnet

Following on from last week’s article which focused on volatile UK equity income funds, FE Trustnet looks at the global funds that are top performers but perhaps better suited to strong-stomached investors.

While many turn to global portfolios as a means of diversification away from core UK holdings, some funds within the IA Global sector adopt high-conviction approaches which can often lead to them enduring a rocky performance over time.

However, despite the high levels of volatility, there are many funds that have done well from this higher-risk investment approach.

FE Trustnet takes a look at the four funds which have combined high annualised volatility and the sector’s highest alpha scores, which measure the returns the fund has been able to add over its benchmark, to deliver outperformance over the past five years.

 

JOHCM Global Select

Co-managed by Christopher Lees and Nudgem Richyal since its launch in 2008, this five FE Crown-rated fund has achieved total returns of 98.33 per cent over five years. This is 33.12 percentage points more than the MSCI AC World index and almost double the performance of its average peer in the IA Global Sector.

Performance of fund vs sector and benchmark over 5yrs

Source: FE Analytics

In terms of alpha generation, the fund is in the top 11 out of all 274 funds in the IA Global sector at 4.52, while being unafraid to move away from the benchmark has led to bottom-quartile annualised volatility of 14.04 per cent.

Lees and Richyal adopt an unconstrained investment technique on the £2bn portfolio with no restrictions in terms of regional or sector allocation in relation to the benchmark.

Currently, the fund’s biggest weighting is in the telecom, media and technology sector at 37.15 per cent.

Its largest regional weighting is in North America at 54.01 per cent, which is followed by the Pacific Basin at 19.07 per cent and Europe excluding the UK at 9.32 per cent. The fund also has holdings in Japan, UK and Australia.

JOHCM Global Select has also outperformed the index since the start of 2015, which the management duo attributes to positive stock selection within the consumer discretionary and financial sectors, although they were slightly weakened by their choice of tech stocks.

“We continue to believe that the supply side disinflationary paradigm remains bearish for the energy, materials, industrial, utilities and telecoms sectors but bullish for the equity market overall,” Lees and Richyal stated in their latest factsheet.

“Financials may be the new value traps, as they are struggling with increased regulation and disintermediation by technology companies.”

“Nobody knows how this movie ends because it has never been played before. But we can use some basic mathematics and probability to help us minimise our mistakes.”

JOHCM Global Select has a clean ongoing charges figure (OCF) of 0.81 per cent and has a 15 per cent charge on annual outperformance.


 Henderson Global Growth

The fund with the second-highest alpha ratio and greater volatility than its peers is Henderson Global Growth, which has been managed by Ian Warmerdam since 2009.

Over five years, the fund has achieved total returns of 91.54 per cent, outperforming the MSCI AC World index by 26.33 percentage points and its average peer by 38.31 percentage points.

Performance of fund vs sector and benchmark over 5yrs

Source: FE Analytics

Despite a top-quartile alpha ratio of 4.15, the fund has a third-quartile maximum drawdown, which shows how much an investor who have lost if they bought and sold at the worst times, of 15.64 per cent.

Additionally, the fund has a bottom-quartile annualised volatility of 13.38 per cent.

This is perhaps due to Warmerdam’s high-conviction investment approach, which is shown through his concentrated portfolio of just 54 stocks, and his bias towards the information technology sector. This accounts for 30.3 per cent of the portfolio, more than double the benchmark’s weighting.

Holdings are chosen for their innovation and for the fact that the manager deems them to be under-appreciated by the market, while he thinks they can potentially provide significant growth opportunities.

However, many of the companies chosen are large multinationals – the fund’s top holding is in Apple, which has been allocated 3.8 per cent of the portfolio.

Also in its top 10 holdings are Walt Disney, South African multinational media corporation Naspers and Delphi Automotive, which is an automotive parts manufacturing company based in Kent.

In terms of country allocation, the fund has its largest weighting in North America at 57.4 per cent. This is followed by Europe excluding the UK at 15.8 per cent, the Pacific Basin at 8.3 per cent and the UK at 5.6 per cent.

Henderson Global Growth has a clean OCF of 0.85 per cent.

 

Artemis Global Growth

Artemis Global Growth, managed by Peter Saacke since 2004, seeks capital growth through a diversified portfolio invested in any economic sector in any part of the world.

Saacke has an unconstrained investment approach and his stockpicking has stock-picking has won the fund a top-quartile alpha ratio of 3.61, as well as a top-quartile annualised return of 13.74 per cent.

It also has bottom-quartile annualised volatility ratio of 14.18 per cent over five years.

During this time, the fund has achieved total returns of 99.08 per cent, which is 33.87 per cent more than its index and 45.85 per cent more than its average peer.

Performance of fund vs benchmark and sector over 5yrs

Source: FE Analytics


In terms of investment process, the fund uses Artemis’ SmartGARP system which uses both top-down and bottom-up inputs when analysing stocks.

SmartGARP is driven by six factors, five of which are equally weighted. Saacke puts equal attention on growth, value, top-down and fund manager sentiment and places a heavier emphasis on the stock’s momentum.

Artemis Global Growth has a 40.3 per cent weighting in North America, a 27.8 per cent weighting in Europe excluding the UK and 22.6 per cent in global emerging markets.

The fund has a clean OCF of 0.88 per cent.

 

GS Global Small Cap Core Equity Portfolio

The final high-alpha/high-volatility fund in the list is GS Global Small Cap Core Equity Portfolio, which use a strategy called CORE to select stocks.

The fund boasts a top-quartile alpha ratio of 3.46 per cent, a top-quartile Sharpe ratio, which is an indicator of risk-adjusted return, of 0.67 per cent and a top-decile annualised return of 12.58 per cent.

However, it has a bottom-quartile volatility ratio of 13.48 per cent, which reflects the fact that it focuses on the lower end of the market-cap spectrum.

Over five years, GS Global Small Cap Core Equity Portfolio has achieved total returns of 94.15 per cent, outperforming its peer average by 40.92 percentage points.

Performance of fund vs sector and benchmark over 5yrs

Source: FE Analytics

GS Global Small Cap Core Equity Portfolio has 62 per cent of its assets in North American smaller companies, 15.7 per cent in Europe ex UK and 9.4 per cent in Japan. United Therapeutics is its biggest holding, followed by Alaska Air Group and PBF Energy.

The fund has ongoing charges of 1.5 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.