Four funds in the IA Global sector have provided top quartile returns for those investors willing to overlook high volatility and potential losses.
Many investors want certainty, particularly in the current climate with yields at near-historic lows and macroeconomic and political issues coming to the fore.
Yet some investors like volatility, as it can provide an attractive entry point to a fund that has shown it has the potential to make strong returns over a longer period.
Below FE Trustnet looks at the four funds in the IA Global sector that have delivered top quartile returns over the last five years but have also been among the most volatile with high maximum drawdowns - the most an investor could lose if buying and selling at the worst possible times.
We have previously looked at the UK funds for investors that can stomach short term volatility and those that have minimised short-term losses. In an upcoming article we will look at the global funds for risk-taking investors.
Baillie Gifford Global Discovery
The best performing of the four eligible funds is Baillie Gifford Global Discovery, managed by FE Alpha Manager Douglas Brodie.
The £267m fund is able to invest up to 10 per cent of the portfolio in any one holding although its current top holding – MarketAxess – represents 6.7 per cent of the fund.
With a growth tilt, the fund invests in companies operating in industries with potential for structural chand innovation.
The portfolio has 30.3 per cent in information technology, 29.4 per cent in healthcare and 15.3 per cent in financials; its smallest positions are in energy (0.1 per cent) and materials (2.1 per cent).
It should also be noted that the fund is benchmarked against the S&P Global Small Cap index, meaning it has a higher weighting to smaller companies than the large-cap global funds.
The fund has returned 166.15 per cent over the last five years with volatility of 14.29 per cent compared to the MSCI AC World’s volatility of 9.53 per cent.
Performance of fund vs MSCI AC World over 5yrs
Source: FE Analytics
The fund has a relatively low maximum drawdown of 13.86 per cent over the last five years when compared to the other funds on the list, though this is still in the bottom quartile of the IA Global sector.
The Baillie Gifford Global Discovery fund has a clean ongoing charge figure (OCF) of 0.78 per cent.
Invesco Perpetual Global Opportunities
While Baillie Gifford Global Discovery has been the best performer, the fund providing the most return for the risk is Invesco Perpetual Global Opportunities, which has the highest Sharpe ratio of any fund mentioned.
The Sharpe ratio measures risk adjusted returns and FE Alpha Manager Stephen Anness and Andrew Hall’s fund has a score of 1.32 placing it in the top quartile of the IA Global sector.
The fund is also in the top quartile for returns, having gained 141.92 per cent over the last five years, with volatility of 11.92 per cent and a maximum drawdown of 15.17 per cent – both bottom quartile figures.
Performance of fund vs MSCI AC World over 5yrs
Source: FE Analytics
The £212m fund is driven by high conviction, unconstrained stock selection with 42 holdings in the portfolio.
It is 31.44 per cent weighted to the US, 25.17 per cent to the UK and 11.56 per cent to Germany and is overweight the financial sector (31.57 per cent) with high exposure to energy (12.14 per cent), healthcare (10.27 per cent) industrials (16.83 per cent) and consumer discretionary (16.99 per cent).
“We seek what we believe to be the best investment ideas from anywhere in the world, building an occasionally concentrated portfolio of stocks that we believe has the potential to deliver attractive returns over the long term,” the managers said in its latest factsheet.
The fund has a yield of 0.82 per cent and an OCF of 0.95 per cent.
Guinness Global Money Managers
The £5m Guinness Global Money Managers fund run by Tim Guinness and Will Riley also makes the list of top performing funds that have experienced high volatility.
The fund invests only in companies involved in asset management and other related industries and is therefore susceptible to the performance of that one sector making it potentially more volatile.
“Successful asset managers can grow very rapidly, particularly in rising markets. Their risk‐return characteristics are especially attractive, since they tend to require relatively little capital to grow,” the managers said in its latest factsheet said.
The top holding in the fund is Jupiter Fund Management, followed by Polar Capital and Liontrust Asset Management who round out the top three.
The fund has returned 137.95 per cent over the last five years with volatility of 13.91 per cent and a maximum drawdown of 22.35 per cent – significantly higher than the others mentioned.
Guinness Global Money Managers has an OCF of 1.24 per cent.
Templeton Growth
The final fund is the £248m Templeton Growth fund run by Dylan Ball, Heather Arnold and Peter Moeschter.
The fund has returned 126.64 per cent over the last five years but struggled somewhat in 2014 and 2015 when it was in the bottom quartile of the IA Global sector.
Performance of fund vs MSCI AC World over 5yrs
Source: FE Analytics
As a result, it has a higher volatility (11.76 per cent) and maximum drawdown (15.78 per cent) than much of the sector.
The fund is 33.45 per cent weighted to the US, though this is 19.53 percentage points underweight compared to its MSCI All Country World index benchmark.
The fund is overweight financials, healthcare and energy while underweight consumer discretionary stocks and industrials.
Templeton Growth has a yield of 1.37 per cent and an OCF of 0.85 per cent.