Funds from the likes of Fidelity and Baillie Gifford have built up a solid track record of staying out of the bottom quartile of the IA Global sector – a notoriously difficult sector in which to win outperformance – but some passive vehicles have managed to outpace their active rivals.
Finding a fund that can consistently avoid being among a sector’s worst performers is a start for any portfolio but the hard work comes in identifying these funds. With this in mind, we have looked at the IA Global sector to see which funds spent the least amount of time in the fourth quartile since the onset of the financial crisis in early 2007.
This sector is one where active managers tend to struggle in beating the benchmark. Our data shows the average IA Global fund has only outperformed the FTSE World ex-UK index in eight of the last 10 full calendar years and is lagging by more than 30 percentage points on a 10-year view.
Performance of sector vs index over 10yrs
Source: FE Analytics
Furthermore, the peer group is behind the index by almost 20 percentage points on a five-year view and close to 10 percentage points over three years.
There are 159 funds in the IA Global sector with a track record spanning back to 1 Jan 2007 and all of these have spent some time in the peer group’s fourth quartile during the 33 quarters since, as would be expected.
However, FE Trustnet research shows that two funds have managed to spend only one quarter in the bottom quartile over this time - and both are based around passive investing strategies.
The £411.4m Aviva Investors International Index Tracking fund, which is managed by Ned Kelly, aims to track the returns of FTSE World ex-UK. Over the period covered by this study, it has posted a 66.49 per cent return against the index’s 86.07 per cent.
The other fund with just one quarter in the fourth quartile is BlackRock NURS II Overseas Equity, which is primarily a portfolio of BlackRock’s index trackers put together by Stephen Walker – a member of the firm’s beta strategies group. The fund has made 79.99 per cent since the start of 2007.
Performance of funds vs sector and index from 1 Jan 2007 to 30 Jun 2015
Source: FE Analytics
Neither of these funds are expected to beat the benchmark as even if they mirror it perfectly, the effect of charges means that some underperformance is guaranteed. However, some active funds are currently outpacing the FTSE World ex-UK over the period in question while logging up very few quarters in the fourth quartile.
The £39.7m Baillie Gifford Phoenix Global Growth fund, which is headed up FE Alpha Manager Richard Bell, has returned 97.69 since the start of 2007. Although it has no set benchmark, this is 10 percentage points more than the FTSE World ex-UK and 20 percentage points over the MSCI World’s 74.45 per cent gain.
Information on the fund is hard to come by, as it is aimed at institutional investors. This also means it is not listed on the major platforms.
According to Style Research, the fund is heavily biased towards the US with 40 per cent of assets invested there, while another 37 per cent is in UK stocks – which may prove off-putting to those seeking global exposure. There are smaller allocations to countries such as Sweden, Switzerland, France and Canada.
However, our research shows that one other fund has outperformed global equities since 2007 and only spent three quarters in the bottom quartile, while being accessible to all investors: Fidelity Global Focus, which is managed by Amit Lodha.
Performance of funds vs sector and index from 1 Jan 2007 to 30 Jun 2015
Source: FE Analytics
Over the period in question the fund has returned 95.50 per cent. While 50.2 per cent of the portfolio is in US stocks, it has just 8.1 per cent in the UK; some 8.9 per cent is in Japan, 7.6 per cent in is Switzerland and 5 per cent in India.
Fidelity Global Focus has posted a higher return than the FTSE World ex-UK in five of the past 10 full calendar years while it has beaten the MSCI AC World index, which is its benchmark, in six.
It must be noted that the fund’s concentrated approach means that it tends to fall harder than the market in down periods such as 2008 and 2011, but its outperformance in rallying years can be significant.
In all, 27 members of the IA Global sector returned more the FTSE World ex-UK between the start of 2007 and the halfway point of 2015 but investors will have had to face more quarters in the bottom quartile to get there.
The highest returning fund over the period was L&G Global Health & Pharmaceutical Index, which returned 184.96 per cent and spent eight quarters in the fourth quartile. Schroder Global Healthcare returned 179.94 per cent and Fidelity Global Health Care is up 171.15 per cent; both have eight bottom-quartile quarters.
Looking outside of specialist funds, Henderson Global Growth is the next best performer with a 147.17 per cent total return and just six quarters in the last quartile while Veritas Global Focus is up 132.14 per cent with only five bottom quarters.
