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The global equity funds that have bounced back from the bottom quartile this year

04 May 2017

In the third part of the series, we look at the funds in the IA Global sector that found themselves at the bottom of the pack in 2016 but have resumed their stellar long-term track so far this year.

By Lauren Mason,

Senior reporter, FE Trustnet

Trojan Global Equity, Rathbone Global Opportunities and Baillie Gifford Global Discovery are among some of the funds in the IA Global sector which have bounced back from bottom-quartile returns last year and into the top quartile year-to-date, according to data from FE Analytics.

In the third part of our series, we look at how last year’s aggressive market rotation from quality growth into value stocks, as well as unexpected currency moves and geopolitical events, negatively impacted some of the funds with the strong long-term track records.

Having already focused on funds in the IA UK All Companies and IA UK Equity Income sectors, we decided to turn our attention to the funds in the IA Global sector.

Out of 270 funds, 31 – or 11.5 per cent – fell into the bottom quartile for their 2016 returns but have bounced back into the top quartile year-to-date.

Out of these, 12 had achieved top-quartile returns the year before and temporarily fell from grace during what has been described as ‘the most hated bull market yet’. These 12 funds are listed in the below table.

 

Source: FE Analytics

As seen above, a number of funds with stellar long-term track records struggled to keep up with their average peer last year but are back on track to recover their relative underperformances.

A prime example is FE Alpha Manager James Thomson’s £1bn Rathbone Global Opportunities fund, which has achieved top-quartile total returns over three, five and 10 years.

Throughout the course of last year, however, the fund returned 16.79 per cent compared to its average peer and FTSE World benchmark’s respective returns of 23.33 and 29.59 per cent.

This could have been the result of Thomson’s zero weighting to emerging market equities which, by his own admission, he avoids as he doesn’t have enough knowledge of the market area.

Instead, the manager (pictured) holds developed market equities – most of which are US-based – which he believes offer high levels of long-term growth and boast strong balance sheets. Examples of the fund’s largest holdings include Amazon.com, Facebook, Visa and Adobe Systems.

Given the recent pullback in the growth/value rotation, the manager has jumped back up to near the top of the pack year-to-date, outperforming his sector average by 3.98 percentage points with an 8.41 per cent return.


Another fund with a stellar long-term track record that has made it onto the list is Troy’s Trojan Global Equity fund, which has four FE crowns and is headed up by Gabrielle Boyle.

The fund has comfortably outperformed its average peer over three, five and 10 years and has outperformed its MSCI World benchmark since launch.

Performance of fund vs sector and benchmark since launch

 

Source: FE Analytics

While the fund may struggle to outperform its benchmark at times, it should be noted that the manager has a focus on capital preservation and achieving attractive absolute returns over the long term.

For instance, it has a top-quartile maximum drawdown (which measures the most money lost if bought and sold at the worst possible times), downside risk (which predicts its susceptibility to lose money during falling markets) and annualised volatility over five and 10 years.

As with Thomson’s fund, Boyle seeks high-quality and large-cap growth companies with concrete fundamentals. This also leads the fund to adopt a natural overweight to the US; its largest holdings include the likes of Microsoft, Alphabet and American Express.

It is therefore unsurprising that it struggled last year, having returned 19.53 per cent, which meant it underperformed its average peer by 3.8 percentage points.

Year-to-date though, it has already returned 5.99 per cent compared to its sector average and benchmark’s respective returns of 4.6 and 3.66 per cent.

A third fund on the list which has a notably strong long-term track record is FE Alpha Manager Douglas Brodie’s Baillie Gifford Global Discovery fund.

Unlike the other strategies, this fund focuses on companies further down the cap spectrum and is benchmarked against the S&P Global Small Cap index. Brodie looks for companies that offer significant growth prospects over very long-term time horizons and, as such, the fund may not be for the faint-hearted. Since the fund’s launch in 2011, for instance, it has a bottom-quartile maximum drawdown of 17.84 per cent as well as a bottom-quartile downside risk ratio and annualised volatility.


Investors that have stomached the volatility have been well-rewarded though. Over the same timeframe, it has returned 134.42 per cent compared to its average peer’s return of 69.66 per cent.

Performance of fund vs sector since launch

 

Source: FE Analytics

Given the fund invests in smaller and therefore higher-risk, under-researched companies, it should come as no surprise to investors that both its gains and losses are likely to be more extreme than those of its average peer. This could be why the fund had a particularly difficult year last year when it returned just 10.63 per cent.

The fund on the list to have achieved the highest return so far this year at 16.3 per cent – making it the highest performer in the entire sector so far in 2017 – is the five crown-rated Morgan Stanley Global Opportunity fund.

The Luxembourg-domiciled Sicav uses US dollars as its base currency and is $1.4bn in size. Manager Kristian Heugh aims to provide long-term growth through investing in both established and emerging companies which are high-quality and believed to be undervalued at time of purchase.

The manager defines ‘quality’ as firms with sustainable competitive advantages and the ability to perform regardless of the macroeconomic backdrop. Its largest individual weightings are currently Facebook, Chinese education and technology enterprise Tal Education Group and Amazon.com.

Since its launch in 2010, the fund has doubled the returns of its average peer and MSCI AC World index. However, its bias towards quality put a dampener on the fund’s returns in 2016, when it ended the year up 19.75 per cent compared to its average peer’s return of 23.33 per cent.

Other global funds on the list that fell from the top quartile in 2015, to the bottom in 2016 and have since returned to the top-spot include T. Bailey Growth, HL Multi Manager Special Situations and Jupiter Fund of Investment Trusts.

Sector-specific funds such as Fidelity Global Consumer Industries, Fidelity Global Health Care and Davy Global Brands Equity also made it onto the list, although they have a different mandate and investable universe from most funds in the sector.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo 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.