M&G Global Select, Jupiter Global Managed and Standard Life Investments Global Equity Income are among a handful of global equity funds that have consistently outperformed the market over the long term, new research by FE Trustnet shows.
Global equity funds have been repeatedly criticised for their underperformance of the index. Over the 10 years to the end of 2015, the MSCI AC World index – which covers both developed and emerging market equities – made an 85.35 per cent total return.
The IA Global sector, on the other hand, posted an average return of just 67.92 per cent. Some 62 per cent of the 125 funds with a long enough track record failed to beat the index over this time frame.
Performance of sector vs index over 10yrs to 31 Dec 2015
Source: FE Analytics. Past performance is not a guide to future returns
Of course, looking back from one date isn’t always the best way to judge a sector’s ability to reward investors; after all, it may just be that the previous 10 years have been difficult for funds, but they otherwise had a strong track record.
In order to see if the average global fund has consistently rewarded or let down investors over the long term, we examined the 10-year performance of the IA Global sector over rolling periods, viewed on a quarterly basis, going back to the start of 1999.
Within this time frame, there are 29 periods: the first spans 1 January 1999 to 31 December 2008 while the final covers 1 January to 31 December 2015. This period covers a number of different market events, such as the bursting of the dotcom bubble, the global financial crisis and eurozone debt crisis, as well as the recoveries following them.
Our data shows that the average IA Global fund has failed to beat the MSCI AC World index in 27 – or 93 per cent – of these 29 periods. In the two periods it did beat the index, the average outperformance was 2.10 percentage points but the average underperformance was much higher at 9.87 percentage points.
Rolling 10yr returns of sector vs index
Source: FE Analytics. Past performance is not a guide to future returns
There are always exceptions, however, and our research found that a number of global funds have managed to beat the MSCI AC World in each of the 29 periods. In total, 10 from the IA Global sector have achieved this feat, as has one member of the IA Global Equity Income sector.
The fund making the highest total return over the full period is SKAGEN Global, which is managed by Knut Gezelius, Søren Milo Christensen, Chris-Tommy Simonsen and Tomas Johansson.
SKAGEN Global invests in underfollowed stocks that the managers believe offer compelling value. This value-orientated approach has worked over the long term – the fund was up 886.90 per cent between 1 January 1999 and 31 December 2015, compared with a 125.44 per cent rise in the MSCI AC World – but means it has lagged in more recent years as this style fell out of favour.
This is clearly shown in the graph below, through the narrowing in the excess returns of the £2.6bn fund over the index. As well as a value bias, the fund has tended to invest more in emerging market equities than its typical peer, which will have hindered returns more recently.
Rolling 10yr returns of fund vs sector and index
Source: FE Analytics. Past performance is not a guide to future returns
In second place is the £534.6m Invesco Perpetual Global Smaller Companies fund, which is headed up by Nick Mustoe and the asset management house’s global smaller companies group. A focus on small-caps has given the expected edge over the large-cap biased MSCI AC World index, with a total return of 418.63 per cent being seen over the period covered by the article.
While small-caps are seen as a riskier part of the market, Invesco Perpetual Global Smaller Companies also holds up well on other metrics. It is the second best fund in the IA Global sector for risk-adjusted returns as indicated by the Sharpe ratio and has been less volatile than the index.
The table below shows all 11 global funds that have consistently beaten the MSCI AC World over rolling 10-year periods.
Source: FE Analytics. Past performance is not a guide to future returns
While many have assets under £300m, there are a few that are more widely held.
William Davies’ £1bn Threadneedle Global Select fund aims to beat the MSCI AC World index by 3 per cent through a flexible all-cap investment strategy that can switch biases between value and growth as the manager deems appropriate.
It currently has it largest overweight in information technology (10 percentage points more than the benchmark), with smaller overweights to healthcare and consumer discretionary. The portfolio is underweight energy, materials, utilities, consumer staples and financials.
The £634.4m M&G Global Select fund is the next largest of the consistent outperformers. It’s important to note that John William Olsen has only run the portfolio since July 2014; past managers over the full period include Nick Train and Graham French.
Since taking over the fund, Olsen has made a 14.46 per cent total return, outperforming the MSCI AC World, which is up 12.84 per cent, and the average fund in the sector, which has gained 8.73 per cent.
At the other end of the spectrum, we found that 14 funds from the IA Global and IA Global Equity Income sectors have not beaten the MSCI AC World in any of the 29 10-year periods covered by this study, although as would be expected a number are index trackers.
Source: FE Analytics. Past performance is not a guide to future returns