The Old Mutual Global Equity fund is the only fund in its peer group that has been able to beat global equities in each of the last five years, the latest FE Trustnet study finds. 
Funds in the IA Global sector have a poor track record in beating global indices such as the MSCI World. Our data shows that only 41.4 per cent of funds with a long enough track record have beaten the MSCI World over the past 10 years.
Over one year, this falls to 34.8 per cent while the proportion of outperformers stands at 29.7 per cent over three years and at 24.4 per cent over five years.
Meanwhile, only 10 funds – or 7.8 per cent of the peer group that have been around long enough – are currently outperforming over one, three, five and 10-year views.
These include specialist healthcare funds like Schroder Global Healthcare and L&G Global Health & Pharmaceutical Index as well as traditional global funds such as Henderson Global Growth and Artemis Global Growth.
Performance of sector vs index over 10 years
Source: FE Analytics
A number of reasons have been given as to why global funds are among the worst hunting grounds for active managers. David Hogarty, manager of the KBI Dividend Plus Developed Equity fund, recently told FE Trustnet that there are three main mistakes the typical global fund makes that leads to their underperformance.
One of these was that global funds tend to be too concentrated and thereby fail to capture a decent number of the opportunities that are thrown up on the global stage.
“A lot of fund managers cut their teeth with regional portfolios and global mandates are a relatively new concept. However, some have tried to repeat those same portfolio construction rules [that they used in regional funds] with a global mandate and it doesn’t work,” Hogarty told us.
“When you look at UK funds, for example, the breadth of the economy is large but it isn’t huge. With a global mandate, you have so many different countries, which are in different stages of their cycles, different currencies and other random factors which are impossible to control.”
“Therefore, the idea that you can cover the globe with just 25 to 30 stocks is crazy.”
The manager’s KBI Dividend Plus Developed Equity fund sits in the offshore universe and has built up a good track record of outperformance. As the above figures illustrate, there are few in the Investment Association universe that can boast this as well.
We looked through the IA Global and IA Global Equity Income sectors to see if any funds have beaten the MSCI World in each of the last five full calendar years as well as over the year to date. Although not every fund is benchmarked against the index, it is one of the most commonly used when it comes to global equities.
Only one fund was left after the filter was run: Old Mutual Global Equity, which is managed by Ian Heslop (pictured on page one), Amadeo Alentorn and Mike Servent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The £233.5m fund beat the MSCI World, which is its benchmark, and sat in the first quartile of the IA Global sector in 2010, 2011, 2012, 2013 and 2014. It’s also up 8.93 per cent over 2015 so far, compared with a 7.37 per cent rise in the index and an 8.09 per cent average gain in the peer group.
Old Mutual Global Equity has a different approach to many of its rivals, building a diversified portfolio through a quantitative process that seeks out companies with above-average growth and below-average valuations.
This leads to the fund having many more holdings that its typical peer and avoiding one of the global fund problems highlighted by Hogarty – currently the count is at 524 stocks. The portfolio’s largest position is Apple, followed by Johnson & Johnson, Intel, Novo Nordisk and Exxon Mobil.
Almost 60 per cent of assets are in US and Canadian equities, while 17.6 per cent is in Europe, 13.3 per cent in Asia including Japan and 8.6 per cent in the UK. Healthcare is the fund’s largest sector weighting, followed by financials and information technology.
Heslop, Alentorn and Servent’s quantitative process means that the managers do not have to meet with company management, thereby avoiding forming an emotional attachment to holdings. Placing too much emphasis on company meetings is another common fault of global managers, according to Hogarty.
Over the past five years, Old Mutual Global Equity looks good on other metrics. Although it has been more volatile than the index and its average peer, the fund is first decile when it comes to risk-adjusted returns as measured by the Sharpe, Sortino and Treynor ratios, maximum gain and information ratio, while it is second decile for maximum drawdown.
It must be noted that while the fund’s track record has been strong over the past five years, performance before that was more hit and miss. For example, it was fourth quartile and underperformed the index by 2 percentage points in 2009 with a 13.53 per cent gain; its average peer made 22.95 per cent that year.
But despite this, it’s still outperforming over the longer term. Since the three managers were appointed to the portfolio in December 2004 it has returned 174.95 per cent – beating the MSCI World by around 30 percentage points and the average IA Global fund by 50 percentage points.
Performance of fund vs sector and index over managers’ tenure
Source: FE Analytics
Old Mutual Global Equity has a clean ongoing charges figure of 1 per cent.
