Rathbone Global Opportunities, Lindsell Train Global Equity and Fidelity Moneybuilder Global are among a handful of global funds that have more than triple the UK weighting of the MSCI World index in their portfolios, according to FE Analytics.
Out of 208 funds within the IA Global and IA Global Equity Income sectors with any weighting to the UK at all, 30 of these (excluding UK-listed funds of investment trusts) fall into this category, with a further 38 more than doubling the index’s UK weighting.
Many investment professionals are adopting a cautious stance on the UK at the moment, given the impending EU referendum which will be held in less than a fortnight. 
In an article published last week, FE Alpha Manager David Coombs (pictured) explained that he is currently holding his highest-ever cash weighting because of concerns surrounding a potential Brexit and therefore only holds large, global-facing stocks in the region at the moment.
This sentiment isn’t shared by everyone however, with Fidelity’s Nick Peters maintaining an overweight to the region across his multi-asset portfolios (versus both the fund’s benchmark and the MSCI Word index) as he believes it still offers value opportunities.
“Don’t forget the stock market is very different from the UK economy. The UK economy is softening but the UK stock market is more international and is heavily made up of financials, basic materials and energy stocks, which I see as reasonably good value,” he explained.
“Obviously with the oil price picking up as well, that’s going to be helping those energy stocks over time.”
“If we do see a Brexit, there’s likely to be a sell-off in the market and a sell-off in sterling, which to my mind is a way of adding to positions at that point.”
In fact, two of the funds he co-manages – Fidelity Wealthbuilder and Fidelity Moneybuilder Global – hold the 12th and 13th highest UK weightings within the IA Global and IA Global Equity Income sectors at 31 and 30.75 per cent respectively.
The former, which is five crown-rated, is £726m in size and predominantly invests in other Fidelity funds, although it is also able to invest in fixed income and use derivatives.
Its benchmark consists of FTSE All Share at 30 per cent, 20 per cent each in the MSCI North America, MSCI Europe ex UK and MSCI Pacific indices and 10 per cent in the MSCI Emerging Markets index, which contributes to the fund’s UK overweight versus the MSCI World.
Since Peters joined co-manager James Bateman in February 2014, it has made a total return of 18.8 per cent, outperforming its sector average by 1.85 percentage points and has done so with a lower maximum drawdown (which measures the most potential money lost if bought and sold at the worst times) and a higher Sharpe ratio (which measures risk-adjusted returns). The fund has also outperformed the MSCI World over one, three, five and 10 years.
Performance of fund vs sector and index under Peters
Source: FE Analytics
The latter fund – Fidelity Moneybuilder Global – has the same benchmark and also invests mostly in Fidelity funds.
Peters began co-managing this fund at the same time as Fidelity Wealthbuilder and, over this time frame, it has made a total return of 16.43 per cent, which is broadly in line with its peer group composite. As with Fidelity Wealthbuilder, it has outperformed the MSCI World index over one, three, five and 10 years.
The global fund with the highest UK allocation overall though is Stonehage Fleming Global Equities II, which holds 64.43 per cent in the region compared to the MSCI World’s allocation of 7.25 per cent.
Despite residing in the IA Global sector, the fund’s mandate is to predominantly invest in UK stocks and is benchmarked against the FTSE All Share. This also stands true for Stonehage Fleming Global Equities I, which is in 11th place for its UK weighting at 31.8 per cent.
The global fund with the next highest weighting to the UK is CF Adam Worldwide at 59 per cent. Headed up by Anna Croze and Mark Ivory since 2012, the £26.5m fund’s benchmark is a 50/50 hybrid of the FTSE All Share and the FTSE World ex UK indices.
The fund is of course likely to prefer the UK over other regions at any one time but will hold stocks in the US, Continental Europe, the Far East and, if deemed to harbour particularly strong investment opportunities, other regions across the globe.
The next funds on the list follow a similar pattern in terms of having benchmarks with greater weightings to the UK than the MSCI World index such as Matterley UK & International Growth, BlackRock NURS II Global Equity and Lazard Managed Equity.
Funds in global sectors with 20 highest UK weightings
Source: FE Analytics
One of the global funds with the highest UK weightings – HL Multi Manager Special Situations – is benchmarked against the FTSE All Share and, over co-manager Lee Gardhouse’s 15-year tenure, has always maintained a weighting of between 40 and 50 per cent to UK equity managers.
“The reason is we find the greatest number of managers with proven ability to add value through sector positioning and stock-picking within the UK market, rather than because we believe the UK market will deliver long-term outperformance. For us, it is about manager selection not asset allocation,” the manager explained.
“Over the last 15 years this exposure to UK managers has contributed the most to our significant outperformance against our peer group and global indices. It has helped us beat the peer group over one, three, five and 10 years and also since launch.”
Performance of fund vs sector and indices over 10yrs
Source: FE Analytics
“Should the UK market fall much further it will look increasingly attractive from a relative value perspective, which in time is likely to provide us with a tailwind as opposed to the headwind we have suffered recently.”
Some however, such as SF Metropolis Value (which has a 46.42 per cent UK weighting), SVS Brown Shipley Dynamic (which has a 36.94 per cent weighting) and McInroy & Wood Smaller Companies (which has a 31.88 per cent weighting) aren’t benchmarked against an index, which means their regional allocation is decided entirely by their management teams.
SF Metropolis Value and McInroy & Wood Smaller Companies have outperformed both their sector average and the MSCI World index over one, three and five years as well as year-to-date, while Brown Shipley SVS Brown Shipley Dynamic has lagged behind both the sector average and index over the same time frames.
Notable examples of funds that have done particularly well while maintaining UK overweights and have achieved high FE crown ratings include Nick Train and Michael Lindell’s Lindsell Train Global Equity (which has a 29 per cent UK weighting), Douglas Brodie’s Baillie Gifford Global Discovery (which has a 24.69 per cent weighting), Terry Smith’s Fundsmith Equity and James Thomson’s Rathbone Global Opportunities fund (which has a 26.33 per cent weighting).
All of these funds are headed up by at least one FE Alpha Manager and have an FE crown rating of four or above.
Four and five crown-rated funds in global sectors with 10 highest UK weightings
Source: FE Analytics
None of these funds have a benchmark that is biased towards the UK and all of them have outperformed the MSCI World index over three and five years and have, with the exception of Baillie Gifford Global Discovery, outperformed over the last year.
Performance of funds vs sector and index over 5yrs
Source: FE Analytics
In relation to his UK overweight (Rathbone Global Opportunities is also overweight its FTSE World benchmark in terms of its UK exposure), manager Thomson said: “In the short term, Brexit would be bullish for this global fund, as sterling would weaken and that would flatter the circa 75 per cent of the fund outside the UK.”
“In addition, our UK exposure tends to be outside of the most vulnerable Brexit areas such as financial services and housebuilders. But in reality, despite narrowing opinion polls, we believe that our companies will be just as innovative, adaptable and differentiated in either scenario.”
“In fact, every geo-political or health scare in the past 20 years has been a buying opportunity. According to JPMorgan equity strategy, within six months of these scenarios, the market has rallied on average by 7 per cent.”
Other global funds that have more than three times the amount of UK stocks that the MSCI World has despite the impending Brexit include Investec Global Special Situations, Invesco Perpetual Global Equity Income, Guinness Global Money Managers and Baillie Gifford Global Income Growth.
