Global equity funds have seen a significant surge in popularity over recent years.
Firstly, it is a relatively new strategy with many groups launching funds into the space over the past decade. However, many investors have also wanted to diversify their portfolios away from the often concentrated UK market – both from an income stream perspective and total top down allocation point of view.
However, as with any sector, the large majority of investors will flock to a select number of funds in global peer groups.
We can see this on our website, with the top four most viewed fund factsheets in the IA Global and IA Global Equity Income sectors by our advisers accounting for 30 per cent of the peer groups’ total impressions so far in 2015.
Source: FE Analytics
Of course, it comes as little surprise that Fundsmith Equity, Newton Global Income, Artemis Global Income and M&G Global Dividend have proven to be so popular given their size and outperformance over the years.
However, given there are some 299 funds in the IA Global sectors, it means there are many other top performing funds that advisers are ignoring. Therefore, in the next in the series, we take a look at three funds which have all outperformed but have continued to go under the radar of our professional readership so far in 2015.
First on the list is the £595m Morgan Stanley Global Brands, which despite its enviable track record, has only collected 0.3 per cent of the sectors’ total factsheet impressions this year.
The portfolio is headed up William Lock and a raft of deputies and, as its name suggests, is a concentrated collection of global mega-cap names which have a strong franchise, reliable earnings and strong balance sheets.
Therefore, in many respects, it can viewed in a similar light to FE Alpha Manager Terry Smith’s Fundsmith fund which has proven to be the most popular fund in the peer groups with our advisers this year.
Its performance has been very good as well as since Lock took charge of Morgan Stanley Global Brands in June 2009, it has been a top decile performer in the IA Global sector with returns of 150.28 per cent – beating its MSCI World benchmark by 30 percentage points in the process.
Performance of fund versus sector and index under Lock
Source: FE Analytics
With its focus on higher quality names, the fund has tended to outperform in more difficult conditions. For example, it made 8.57 per cent in 2011 when the sector fell 9.27 per cent and has outperformed in each of the last two years.
It has, however, lagged the sector and index in strongly rising markets.
Nevertheless, that return profile means Morgan Stanley Global Brands has been in the top decile for its maximum drawdown, annualised volatility and risk-adjusted returns (as measured by Sharpe ratio) under Lock.
The fund is packed full of household names, with its top 10 (which accounts for more than 60 per cent of its total assets) including Nestle, Time Warner and British American Tobacco.
Like with the Fundsmith offering though, question marks will remain over the fund’s future performance profile if we do witness a raising rate environment as many of its holdings are expected to underperform relative to more cyclical companies.
Morgan Stanley Global Brands has a clean ongoing charges figure (OCF) of 1 per cent.
Baillie Gifford Long Term Global Growth
As a group, Baillie Gifford are renowned from their long-term, very active and bottom up style and this has meant they have one of the highest proportions of outperforming funds in the Investment Association universe.
Their £203m Long Term Global Growth fund, which is managed by Mark Urquhart, is one such example but has still only generated 0.02 per cent of the global sectors’ total adviser traffic in 2015.
Urquhart launched the product in September 2005, over which time it sits comfortably in the IA Global sector’s top decile with gains of 172.10 per cent. Its benchmark – the MSCI AC World index – has made 103.89 per cent, on the other hand.
Performance of fund versus sector and index since launch
Source: FE Analytics
The fund is also top decile over one, three and five year periods having beaten the index in six of the last nine calendar years. Baillie Gifford Long Term Global Growth is also top-decile and ahead of the benchmark in 2015 with its double digits gains.
It has tended to be more volatile than many of its peers, though, and has one of the largest maximum drawdowns in the sector over the past 10 years. Nevertheless, it sits in the top quartile for its risk adjusted returns over that time frame.
Like the Morgan Stanley fund, Baillie Gifford Long Term Global Growth is a concentrated portfolio with its top 10 making up 57.25 per cent of its assets.
Its top 10 holdings include Amazon, Tesla, Tencent, Baidu, Facebook and Google meaning that it is set up in a similar way to the group’s well-known Scottish Mortgage Investment Trust with its exposure to technology and the emerging markets.
Baillie Gifford Long Term Global Growth has an OCF of 0.75 per cent.
It may not be too surprising that R&M World Recovery has been overlooked by most advisers this year (it has generated less than 0.01 per cent of 2015’s traffic) given the fund a has fairly short track record.
Nevertheless, since its launch in March 2013, the £191m fund has been one of the IA Global sector’s leading lights.
It is managed by Hugh Sergeant and he runs the portfolio in a very similar manner to his two UK funds, which have outperformed over the longer term due to his deep value approach to the market.
According to FE Analytics, R&M World Recovery has been the sixth best performing portfolio (out of a possible 237 in the peer group) since inception with gains of 46 per cent, meaning it has more than doubled the returns of the MSCI World index.
Performance of fund versus sector and index since launch
Source: FE Analytics
The fund got off to a flyer in 2013 as Sergeant’s value approach was well suited to the risk on environment, but was bottom decile with losses of 2.73 per cent in last year’s more difficult conditions.
As to be expected with a portfolio littered with out of favour companies, R&M World Recovery has had a very volatile time of it in 2015 but is still outperforming year to date.
Given the manager’s expertise and experience, it features on Square Mile’s ‘Academy of Funds’ and the team believe it is a very interesting offering for long-term investors who want to diversify away from the UK.
They say investors need a strong stomach though, likening the fund to a whiskey drinker who doesn’t like their tipple watered-down.
“Investors need either an iron constitution or to recognise that a little may go a long way. We have a high regard for Mr Sergeant who has been investing in recovery type stocks throughout his career and he has built an enviable performance record running UK portfolios in a similar fashion. However, this is a high risk, high return strategy that really needs to be considered over the long term,” they said.
R&M World Recovery has an OCF of 1.24 per cent.
