The funds to diversify away from the global giants
05 September 2014
In the latest article in the series, FE Trustnet looks at funds which can diversify from the most popular portfolios in the IMA Global sector.
Investors looking to broaden out their global exposure from one fund could be surprised to see a high level of correlation across the sector, given the size of the managers’ investment universe.
FE Analytics shows many members of the IMA Global sector have a positive correlation of more than 0.90 with each other.
The notable exceptions tend to be funds focused on sectors such as healthcare or financials rather than being a diversified offering.
Recent research by FE Trustnet showed how difficult it can be to identify winners in the sector, after showing more than 75 per cent of its members have failed to beat the MSCI World over three years.
In the latest FE Trustnet study on portfolios with low correlations to the most popular funds, we look at funds that sit alongside some of the IMA Global sector’s most largest offerings.
Three of the most owned global funds are Stuart Rhodes' £9bn M&G Global Dividend, Kristian Falnes, Søren Milo Christensen, Chris-Tommy Simonsen, Johan Swahn and Knut Gezelius’ £4.5bn SKAGEN Global and Andy Headley and Charles Richardson's £2.2bn Veritas Global Focus funds.
Here, we identify three offerings that have the lowest correlation to an equally weighted portfolio of these global giants.
GAM Global Diversified
The £533.6m GAM Global Diversified fund has a five-year correlation of 0.81 to the portfolio of the three largest funds.
FE Alpha Manager Andrew C Green has run the fund since launch in 1984, making him one of the sector’s longest serving managers.
The five FE Crown-rated fund has a strong long-term track record, returning 137.48 per cent over the 10 past years - 20 percentage points more than the average fund in the IMA Global sector.
It achieved first quartile returns in 2012 and 2013 but is fourth quartile over the year to date with a gain of just 3.21 per cent.
Green is a bottom-up stock picker with a deep value bias and pays little attention to the benchmark, which helps the fund to have low correlations with others in the sector.
He tends to invest in companies surrounded by excessive negative sentiment but where he sees a catalyst for change.
The portfolio’s largest geographical allocation is to Japan at 23.04 per cent and includes holdings such as Nippon Telegraph & Telephone, Mitsubishi UFJ Financial Group and Nomura Holdings.
It has 19.74 per cent in the UK, 19.43 per cent in Europe and 18.69 per cent in the US, with 17.95 per cent in cash.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
GAM Global Diversified has a total expense ratio of 1.54 per cent.
Morgan Stanley Global Brands
The £584.9m Morgan Stanley Global Brands fund, which has three FE Crowns, has a correlation to the global giants of 0.82.
The fund has eight named managers - Peter Wright, William Lock, Christian Derold, Bruno Paulson, Vladimir Demine, Dirk Hoffmann-Becking and Marcus Watson. Wright is an FE Alpha Manager.
Morgan Stanley Global Brands has slightly underperformed both the sector and the MSCI World over one and three years, despite making 8.57 per cent in 2011 when the average global fund dropped 9.27 per cent.
Its long-term track record is strong, with 10-year returns of 185.13 per cent against the sector’s 116.21 per cent.
Just over 38 per cent of the portfolio is invested in the US, with 32.6 per cent in the UK, which may be offputting to investors who already own dedicated UK funds, and 11.64 per cent in France.
Its top holdings include British American Tobacco, Nestle and Unilever.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Morgan Stanley Global Brands has an ongoing charges figure (OCF) of 1.00 per cent.
McInroy & Wood Smaller Companies
Because its hunting grounds are outside the typical large cap stocks, the £59.6m McInroy & Wood Smaller Companies fund has a correlation to the global giants of 0.82.
FE Alpha Manager Tim Wood has worked on the fund since launch in 2001. Again, it has a high weighting to the UK at 37 per cent.
But its holdings here are in less familiar names with energy resources and environmental consultancy company RPS Group, precision instrumentation and controls supplier Spectris and manufacturing firm Rotork being found in the portfolio.
North America accounts for 28 per cent of the portfolio, with 29 per cent in Europe, 4 per cent in Australia and 2 per cent in Japan.
Its largest holding is US retail chain Tractor Supply, followed by animal health firm Virbac and RPS Group.
The fund’s 10-year return is an impressive 287.92 per cent - significantly more double the 116.21 per cent seen in the average IMA Global fund.
It is the ninth best fund in the sector over five years but slips into the third quartile over one and three years.
Performance of fund vs sector over 10yrs
Source: FE Analytics
McInroy & Wood Smaller Companies has an OCF of 1.61 per cent.
FE Analytics shows many members of the IMA Global sector have a positive correlation of more than 0.90 with each other.
The notable exceptions tend to be funds focused on sectors such as healthcare or financials rather than being a diversified offering.
Recent research by FE Trustnet showed how difficult it can be to identify winners in the sector, after showing more than 75 per cent of its members have failed to beat the MSCI World over three years.
In the latest FE Trustnet study on portfolios with low correlations to the most popular funds, we look at funds that sit alongside some of the IMA Global sector’s most largest offerings.
Three of the most owned global funds are Stuart Rhodes' £9bn M&G Global Dividend, Kristian Falnes, Søren Milo Christensen, Chris-Tommy Simonsen, Johan Swahn and Knut Gezelius’ £4.5bn SKAGEN Global and Andy Headley and Charles Richardson's £2.2bn Veritas Global Focus funds.
Here, we identify three offerings that have the lowest correlation to an equally weighted portfolio of these global giants.
GAM Global Diversified
The £533.6m GAM Global Diversified fund has a five-year correlation of 0.81 to the portfolio of the three largest funds.
FE Alpha Manager Andrew C Green has run the fund since launch in 1984, making him one of the sector’s longest serving managers.
The five FE Crown-rated fund has a strong long-term track record, returning 137.48 per cent over the 10 past years - 20 percentage points more than the average fund in the IMA Global sector.
It achieved first quartile returns in 2012 and 2013 but is fourth quartile over the year to date with a gain of just 3.21 per cent.
Green is a bottom-up stock picker with a deep value bias and pays little attention to the benchmark, which helps the fund to have low correlations with others in the sector.
He tends to invest in companies surrounded by excessive negative sentiment but where he sees a catalyst for change.
The portfolio’s largest geographical allocation is to Japan at 23.04 per cent and includes holdings such as Nippon Telegraph & Telephone, Mitsubishi UFJ Financial Group and Nomura Holdings.
It has 19.74 per cent in the UK, 19.43 per cent in Europe and 18.69 per cent in the US, with 17.95 per cent in cash.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
GAM Global Diversified has a total expense ratio of 1.54 per cent.
Morgan Stanley Global Brands
The £584.9m Morgan Stanley Global Brands fund, which has three FE Crowns, has a correlation to the global giants of 0.82.
The fund has eight named managers - Peter Wright, William Lock, Christian Derold, Bruno Paulson, Vladimir Demine, Dirk Hoffmann-Becking and Marcus Watson. Wright is an FE Alpha Manager.
Morgan Stanley Global Brands has slightly underperformed both the sector and the MSCI World over one and three years, despite making 8.57 per cent in 2011 when the average global fund dropped 9.27 per cent.
Its long-term track record is strong, with 10-year returns of 185.13 per cent against the sector’s 116.21 per cent.
Just over 38 per cent of the portfolio is invested in the US, with 32.6 per cent in the UK, which may be offputting to investors who already own dedicated UK funds, and 11.64 per cent in France.
Its top holdings include British American Tobacco, Nestle and Unilever.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Morgan Stanley Global Brands has an ongoing charges figure (OCF) of 1.00 per cent.
McInroy & Wood Smaller Companies
Because its hunting grounds are outside the typical large cap stocks, the £59.6m McInroy & Wood Smaller Companies fund has a correlation to the global giants of 0.82.
FE Alpha Manager Tim Wood has worked on the fund since launch in 2001. Again, it has a high weighting to the UK at 37 per cent.
But its holdings here are in less familiar names with energy resources and environmental consultancy company RPS Group, precision instrumentation and controls supplier Spectris and manufacturing firm Rotork being found in the portfolio.
North America accounts for 28 per cent of the portfolio, with 29 per cent in Europe, 4 per cent in Australia and 2 per cent in Japan.
Its largest holding is US retail chain Tractor Supply, followed by animal health firm Virbac and RPS Group.
The fund’s 10-year return is an impressive 287.92 per cent - significantly more double the 116.21 per cent seen in the average IMA Global fund.
It is the ninth best fund in the sector over five years but slips into the third quartile over one and three years.
Performance of fund vs sector over 10yrs
Source: FE Analytics
McInroy & Wood Smaller Companies has an OCF of 1.61 per cent.
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