Newton Global Opportunities, Schroder MM International and Hermes Global Equity are among some of the funds in the IA Global sector which, despite avoiding the bottom quartile during each of the last five years to the end of 2016, have found themselves trailing behind year-to-date.
This research from FE Trustnet is the second part of a series based on the violent investment style fluctuations seen over the last 18 months.
Given that these movements have led to short-term blips in the performance of funds with otherwise stable track records, we decided to shine the spotlight on them as dips in performance can present themselves as buying opportunities.
The first part of the series considered long-term top-performing UK equities funds that had struggled year-to-date.
For the latest study, FE Trustnet focused on all funds within the IA Global sector which, while in the bottom quartile so far in 2017, have avoided the bottom quartile every year over the last five to the end of 2016.
To narrow the list down further, we selected the funds that have also outperformed both their average peer and the notoriously difficult-to-beat MSCI AC World index for their total returns over the last five years until the end of 2016.
We were left with a total of 10 funds, which are shown in the below list.
Source: FE Analytics
The two funds to have achieved the highest total return over five years to the end of 2016 are GS Global Small Cap Core Equity Portfolio and Vanguard Global Small-Cap Index which, as their names suggest, focus on companies that are further down the cap spectrum.
As the MSCI AC World is a large-cap index, it would be unfair to place these funds under the same category as other vehicles on the list.
In fact, only two funds that are officially benchmarked against the MSCI AC World index won a place on our list. Out of these, the fund with the strongest five-year total return to the end of 2016 is the four crown-rated Newton Global Opportunities fund.
Over this time frame, it returned 107.01 per cent compared to its average peer and benchmark’s respective returns of 80.76 and 96.75 per cent. Year-to-date, however, it has underperformed its sector average and the index by 3.73 and 4.02 percentage points with a bottom-quartile 4.91 per cent return.
The fund is headed up by FE Alpha Manager Robert Hay and, as with all Newton funds, adopts a top-down thematic approach to portfolio construction. It is able to invest across the cap spectrum and has a concentrated portfolio of stocks. In terms of regional exposure, it has a 59.1 per cent weighting in US equities, a 16.6 per cent weighting in European equities and 9.6 per cent in the UK. It also has much smaller allocations to Japan, Latin America and Asia Pacific ex Japan.
In terms of its risk metrics over five years to the end of 2016, it is in the top quartile for its annualised volatility, Sharpe ratio (which measures risk-adjusted returns), maximum drawdown (which measures the most money lost if bought and sold at the worst possible times) and downside risk (which predicts susceptibility to lose money during falling markets). Newton Global Opportunities has a clean ongoing charges figure (OCF) of 0.83 per cent and yields 1.02 per cent.
Hot on its heels though – and also benchmarked against the MSCI AC World – is JPM Global Unconstrained Equity, which is headed up by Timothy Woodhouse and Sam Witherow.
Over five years to the end of 2016, the £274m fund has outperformed its benchmark and average peer by a respective 9.38 and 25.37 percentage points with a total return of 106.13 per cent. Investors should note that it has done so with a bottom-quartile annualised volatility and maximum drawdown relative to its sector average, which suggests it may not be best-suited to the more cautious investor. While it has performed well over the longer term, it has returned just 4.36 per cent so far in 2017 – the second-lowest 2017 return on our list.
Performance of fund vs sector, benchmark and index over 5yrs to 2017
Source: FE Analytics
The fund aims to provide long-term capital growth over at least a five-year period, and does so through a blended approach and a predominant focus on large-caps. Its largest regional underweight relative to the benchmark is the US at 46.6 per cent, and its largest regional overweight is the UK at 10.6 per cent. It has a clean OCF of 0.93 per cent and yields 0.61 per cent.
In terms of the list as a whole, the fund with the highest total return over five years to the end of 2016 (aside from the small-cap funds) is the four crown-rated Invesco Perpetual Global ex UK Enhanced Index fund. However, investors should note that its MSCI World ex UK benchmark is of course constructed differently to the MSCI AC World (although there is some overlap, unlike the small-cap indices).
Over five years to the end of 2016, it has outperformed its average peer by 37.2 percentage points with a total return of 117.96 per cent. It has outperformed its benchmark by 6.08 percentage points over this time frame. Year-to-date, however, it has underperformed its benchmark and the MSCI AC World by and 3.46 and 2.83 percentage points respectively with a 5.47 per cent return; this is also a 3.17 percentage-point under-performance relative to the sector average.
It aims to capture the return and risk level of its index while also achieving an additional return over a full market cycle. For instance, there is one basis-point difference between the annualised volatility of the fund and its benchmark and its maximum drawdown is one percentage point more than the index’s over the same time frame.
While its index comprises of more than 1,500 stocks, the fund will have a portfolio of around 400 stocks at any one point. The management team is also able to hold a proportion of stocks from outside the index where they see fit.
Invesco Perpetual Global Ex UK Enhanced Index has a clean OCF of 0.37 per cent and yields 2.24 per cent. Other funds to have outperformed the MSCI AC World index which have made it onto the list - and are also benchmarked against the MSCI World ex UK benchmark - are Dimensional International Core Equity and FP Octopus International Equity.
Next up for its five-year total return of 116.61 per cent to the end of 2016 is Hermes Global Equity, which also has four FE crowns and is managed by Geir Lode and Lewis Grant. Year-to-date, it has returned 6.53 per cent while its MSCI World benchmark and the MSCI AC World index have returned a respective 8.26 and 8.93 per cent.
Performance of fund vs sector, benchmark and index over 5yrs to 2017
Source: FE Analytics
The Ireland-domiciled Sicav is £177m in size and aims to provide long-term growth through a diversified portfolio of 163 stocks. While it is slightly underweight the US relative to its MSCI World benchmark at 57.93 per cent, the fund’s largest holdings are Apple, Amazon, Facebook, Alphabet and Microsoft.
In terms of its risk metrics, it has a second-quartile annualised volatility and maximum drawdown over five years to the end of 2016 when compared to its sector average. Hermes Global Equity has a clean OCF of 0.66 per cent. Schroder QEP Global Core, which adopts a similar investment process to the previously-mentioned Invesco fund, is also benchmarked against the MSCI World index and has won a place on the list.
Another fund on the list worthy of note is Schroder MM International, which is managed by Marcus Brookes, Joe Le Jehan and Robin McDonald. Over five years to the end of 2016, the £508m fund has returned a top-quartile 109.14 per cent but, year-to-date, has returned a bottom-quartile 5.23 per cent.
The fund-of-fund has a portfolio of 15 investment vehicles, with its largest holdings including the likes of GAM Global Diversified, Findlay Park American and Man GLG Japan Core Alpha.
While 30 per cent of the fund is held in global funds, it also has a 22.8 per cent weighting to North American equity funds, 16.3 per cent to European equity funds and 11.5 per cent to Japanese equity funds.
It has a clean OCF of 1.42 per cent and yields 0.3 per cent.