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The IA Global funds in the bottom decile on almost every metric

After looking at global equity funds that have consistently outperformed, FE Trustnet now finds those sitting at the bottom of the peer group.

Gary Jackson

By Gary Jackson, Editor, FE Trustnet
Thursday April 20, 2017

Global funds with a focus on energy stocks have posted some of the worst results for a range of performance and risk metrics in recent years, according to analysis by FE Trustnet.

In an article yesterday, we revealed the IA Global funds at the very top of the peer group when it comes to cumulative five-year returns to the end of 2016, those for the three most recent individual calendar years, annualised volatility, maximum drawdown, alpha generation, Sharpe ratio, downside capture and upside capture relative to the MSCI AC World index.

FE Alpha Manager Terry Smith’s Fundsmith Equity fund topped the list after posting an average decile ranking of 1.5 for 10 metrics we examined over the five year-period, followed by GS Global CORE Equity Portfolio, Ardevora Global Equity, Schroder ISF Global Smaller Companies and Old Mutual Global Equity.

Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016


Source: FE Analytics

However, in this article we turn the study on its head and highlight the IA Global funds with the worst average decile rankings over the five years in question.

As the table on the following page will show, a number of those included have a specialist mandate to invest in energy companies. This should not be too surprising, given the significant falls in the price of many key commodities that took place over the five-year period, leading to big losses and a volatile ride of the funds focusing on them.

At the top of the list with an average decile ranking of 9.8 is Guinness Alternative Energy, with has made a 17.34 per cent total return between 1 January 2012 and 31 December 2016. This was the fourth lowest return of the peer group.

The $7.8m fund is in the IA Global sector’s tenth decile when it comes to five-year returns, alpha generation, annualised volatility, maximum drawdown, Sharpe ratio and downside capture. Given its focus, the fund can make strong returns when energy stocks are outperforming like the 56.67 per cent it made in 2013 (when it was the sector’s second highest returner) – but energy has been out of favour for some time.

This is made clear in the following table, which shows the 25 IA Global funds with the highest average decile rankings. Four have a focus on energy stocks while another two - First State Global Resources and Legg Mason Martin Currie Global Resources – invest in basic materials companies, which have suffered similar problems.


Source: FE Analytics

Another specialist area of global equities is also represented on the list – luxury goods. Two funds with a mandate to invest in this space (JB EF Luxury Brands and Dominion Global Trends Luxury Consumer) have average decile rankings that are higher than nine.

However, some non-specialist funds also appear.

In second place on the list with an average decile ranking of 9.3 and a total return of 29.8 per cent over five years is Neptune Global Smaller Companies, which is managed by Robin Geffen. The £3.6m fund is in the sector’s tenth decile for five-year returns, alpha generation, annualised volatility, maximum drawdown, Sharpe ratio, upside capture and downside capture.

The fund in fifth place – Neptune Global Equity – is also managed by Geffen and has assets under management of £207.9m; it has an average decile ranking of 9.2. Geffen has more than 30 years of investment experience and is a respected fund manager but Neptune Global Equity is in the bottom decile for five-year returns, alpha generation, annualised volatility, Sharpe ratio and downside capture.

Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016


Source: FE Analytics

That said, the fund is in the IA Global sector’s top quintile since launch in 2001 after making a 302.34 per cent total return; its average peer made just 158.39 per cent while its MSCI World benchmark is up 186.82 per cent. Geffen is a long-term active manager (Neptune Global Equity‘s active share is 80.3 per cent) but this does mean the fund can go through extended periods of underperformance.

One area where the manager is seeing opportunities is emerging markets, which have gone through a challenging period but have started to outpace developed markets more recently. Geffen, who has 20.7 per cent of Neptune Global Equity in this part of the market, said at the end of last year: “We believe that we have reached a turning point for emerging market performance, given the reforms we are seeing across the major BRIC nations and beyond and remain confident on the outlook for emerging market performance in 2017 and beyond.”

Other generalist IA Global funds in the lower deciles on the 10 metrics examined here include Old Mutual Voyager Global Dynamic Equity, Aberdeen Global World Equity, Scottish Widows Global Select Growth, GAM Star Worldwide Equity and Sanlam Global Best Ideas.

This article is for professional investors only. You will be redirected to the News & Research homepage in seconds. If you are having problems getting to the page, please click here
Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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