Fundsmith Equity, First State Global Listed Infrastructure and L&G International Index Trust are among five of the most popular global equity funds over the last three months, according to data from FE Analytics.
This comes following the Investment Association’s most recent data, which shows that every equity region apart from the global space saw significant fund outflows during July. While UK equity funds suffered the biggest outflows of £1bn, the smallest outflows were seen in Asian equity funds at £74m.
At the opposite end of the spectrum, global funds experienced inflows of £172m during July. Over the last three months in total, FE data shows that the top five most popular global funds among investors (which are also easily accessible to retail investors) have experienced combined inflows of more than £1.3bn.
In the below article, we take a closer look at these funds and why they could look particularly appealing to investors at the moment:
First on the list is FE Alpha Manager Terry Smith’s Fundsmith Equity, which is one of the best-known funds within the global equity space.
Over the last three months, the fund has attracted inflows of £993.87m, which is more than seven times the amount that the global fund with the second-highest inflows over the last three months has seen.
Smith is renowned for his bias towards high-quality companies, his highly concentrated portfolio and his fund’s significantly low turnover ratio.
He aims to find companies that don’t rely on significant leverage, offer advantages which are difficult for other firms to replicate, are attractively valued and can also provide a high return from the operating capital they’ve employed.
As such, the manager’s initial investable universe is narrowed down to approximately 65 stocks and, out of these, between 20 and 30 will be held in the fund’s portfolio at any one time.
Since its launch in 2010, Fundsmith Equity has returned 186.74 per cent, outperforming its sector average and benchmark by 123.69 and 94.4 percentage points, respectively.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
In terms of its risk metrics over the same time frame, the fund is in the top quartile for its annualised volatility, maximum drawdown (which measures the most potential money lost if bought and sold at the worst possible times), downside risk (which predicts potential to fall in price during negative market conditions) and Sharpe ratio (which measures risk-adjusted returns).
Fundsmith Equity has a clean ongoing charges figure (OCF) of 0.97 per cent and yields 0.84 per cent.
The global fund with the second-highest inflows over the last three months is a passive offering – L&G International Index Trust is £965m in size and has been managed by the LGIM Index Fund Management team since September 2013.
The fund, which tracks the performance of the FTSE World ex UK index, has returned 43.54 per cent over this time frame. This is 3.18 percentage points less than its benchmark and it has produced tracking error over this time frame of 2.57 per cent (a tracking error ratio in excess of 3 per cent indicates an actively-managed fund and a tracking error of below two typically indicates a passive approach).
This is perhaps because the fund uses a “pragmatic replication” approach, which means the team will replicate the index in terms of holding the same weightings in the same constituents, but these may be temporarily adjusted if it believes it is in the investors’ best interests to do so. An example of this would be if the stock the fund needs to trade in is particularly illiquid.
Compared to the fund’s sector average, it has outperformed by 12.37 percentage points since the team has been at its helm.
L&G International Index Trust has a clean OCF of 0.13 per cent and yields 1.7 per cent.
First State Global Listed Infrastructure
Third on the list for its three-month inflows is First State Global Listed Infrastructure, which has five FE crowns and is run by FE Alpha Manager Peter Meany and Andrew Greenup.
The £1.6bn fund, which has seen inflows of £110.35m over the last three months, invests in infrastructure stocks in sub-sectors such as utilities, highways and railways, marine ports, airport services and oil and gas storage and transportation – it will not hold any physical infrastructure assets in its portfolio.
Since Meany launched the fund in 2007, it has returned 27.16 per cent, outperforming its sector average and FTSE Global Core Infrastructure 50/50 index by 14.1 and 1.75 percentage points respectively. It is also in the top decile for its total returns over three and five years and is in the top quartile for its return over the last decade.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Meany and Greenup focus on preserving capital, investing in high quality companies with management and shareholder alignment, and buying into stocks that look appealing over a long-term time horizon.
The managers are also only allowed to invest up to 20 per cent of the fund’s portfolio in emerging markets at any one time.
This has a led to a portfolio of 46 holdings – positions that are deemed to be ‘best ideas’ usually account for at least a 4 per cent weighting while ‘strong buys’ will hold positions of between 2 and 4 per cent. Some of the fund’s largest weightings include the likes of East Japan Railway, Australian toll road developer Transurban Group and San Francisco-based Pacific Gas and Electric Company.
First State Global Listed Infrastructure has a clean OCF of 0.83 per cent and yields 2.78 per cent.
Aviva Investors International Index Tracking
Aviva Investors International Index Tracking is the second global passive fund to make it onto the list, having seen inflows of £63.79m over the last three months.
As with L&G International Trust Index, it tracks the FTSE World ex UK and, since being managed by Brad Beardshell, Ned Kelly and Russell Harris who took over the fund in 2001, it has provided a tracking error of 3.92 per cent, having underperformed its index by 35.34 percentage points with a total return of 118.6 per cent.
That said, the fund’s KIID document notes that the fund’s actual returns may be lower than its benchmark as a result of its charges – it currently has a clean OCF of 0.26 per cent.
Vanguard FTSE Developed World ex UK Equity Index
The global equity fund with the fifth-highest inflows over the last three months is Vanguard FTSE Developed World ex UK Equity Index, which has attracted £53.91m of investors’ money over this time frame.
The behemoth tracker is £2.5bn in size and, as the name suggests, aims to replicate the FTSE Developed World ex UK Equity index as closely as possible.
Since it was launched by the Vanguard European Equity Index team in 2009, it has achieved a tracking error of just 0.5 per cent. It has also managed to achieve a tracking error below 0.07 per cent over one, three and five-year time frames.
Since launch, the fund has therefore outperformed its sector average by 44.21 percentage points with a total return of 166.96 per cent. This is an underperformance of its benchmark of 10.88 percentage points.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The team at Square Mile, who have awarded the fund a ‘Recommended’ rating, said: “We believe that Vanguard have a very strong commitment towards managing passive strategies.”
“Our rating on this fund is based upon our opinion of the suitability of the index tracked, the management group's commitment to operating passive strategies, the size of the fund, the fund's cost and good historic record of tracking the index.”
Vanguard FTSE Developed World ex UK Equity Index has a clean OCF of 0.15 per cent and yields 1.66 per cent.