Lindsell Train Global Equity, Fundsmith Equity and Newton Global Income are among some of the best-performing, top-rated global funds which are overweight the UK relative to the MSCI AC World index, according to research from FE Trustnet.
As part of an ongoing series, FE Trustnet has examined regional weightings of global equity funds for those who, while perhaps bullish on a particular region, may not want to over-expose their portfolio to it through a country-specific vehicle.
While many investors are currently cautious on UK equities, others – including star manager Neil Woodford – believe too much fear has been priced into the market following Brexit and election-related uncertainty.
“In all the heat and light that accompanies an unexpected political outcome, a lot of extreme conclusions have been discussed by market and media commentators,” he wrote in his latest blog post.
“From where I’m sitting, however, economically not a lot has changed. In fact, in some respects, the outlook for the UK economy has actually improved.”
Previously, FE Trustnet examined the global equities funds with the biggest exposure to Europe for investors curious but not ready to invest in a single region strategy.
Below, we have explored the funds in the IA Global and IA Global Equity Income sectors which are overweight the country relative to the MSCI AC World index (which has a 6 per cent regional weighting).
From these, we made a list of the funds that have been awarded at least four FE crowns and are in the top quartile for their total return over five years (although this comes with the usual caveat that past performance is no guide to future returns).
This left us with a total of 13 funds, although we then excluded Artemis Institutional Global Capital because, as its name suggests, it is only available for institutional investors, as well as First State Global Listed Infrastructure and Fidelity Global Financial Services because they have very different investable universes relative to their peers. The resultant table is shown below.
Source: FE Analytics
The fund on the list with the largest weighting to the UK is the five crown-rated Lindsell Train Global Equity fund, which is headed up by Michael Lindsell, FE Alpha Manager Nick Train and James Bullock.
The fund, which has a 27.1 per cent weighting to the UK, has achieved a five-year total return of 172.86 per cent compared to its average peer’s return of 92.9 per cent and the MSCI AC World index’s return of 107 per cent. However, investors should note that the fund is not benchmarked against a particular index.
In terms of its risk metrics, it is in the top quartile for its maximum drawdown (which measures the most money lost if bought and sold at the worst possible times) and its Sharpe ratio (which measures risk-adjusted returns). The fund is in the third quartile for its annualised volatility relative to its average peer, but the management team encourages investors to look through short term movements and focus on long-term capital appreciation.
The team adopts a low turnover, bottom-up approach to stock selection, focusing on a concentrated number of high-quality growth stocks across developed markets. Examples of its largest individual weightings include Unilever, Heineken, Diageo and Nintendo.
The fund on the list with the next-highest UK regional weighting is the five crown-rated Morgan Stanley Global Brands fund, which has a 27 per cent allocation to the country.
As with Lindsell Train Global Equity, the fund focuses its attention on opportunities in developed markets through high-quality growth stocks with strong and recognisable brands. It has a notable portfolio tilt towards the consumer staples sector at 53.76 per cent, with its largest individual holdings including the likes of Unilever, Reckitt Benckiser and Microsoft.
Over five years, it has outperformed its average peer and MSCI World benchmark by 28.06 and 5.32 percentage points respectively with a total return of 120.96 per cent. This means it has outperformed the MSCI AC World index – which we used for the purpose of this study – by 13.96 percentage points.
Performance of fund vs sector, benchmark and index over 5yrs
Source: FE Analytics
Over the same time frame, it is in the top quartile for its maximum drawdown, the second quartile for its Sharpe ratio and is in the third quartile for its annualised volatility.
Next up with a UK regional weighting of 24.7 per cent is Investec Global Special Situations, which has been co-run by Steve Woolley and Alessandro Dicorrado since the start of 2016 after Alastair Mundy took a step back from managing the vehicle. While they have only been at the helm of the fund for a relatively short time frame, both managers have worked as analysts in the value team at Investec for several years.
The duo aims to find stocks which, having undergone a challenging period, demonstrate the ability to turn their performance around and improve their fundamentals over the long term. Examples of its largest holdings include Bank of America, US food service equipment manufacturer Welbilt and Microsoft. Overall, the fund has a concentrated portfolio of 38 holdings.
Over five years, the fund – which is benchmarked against the MSCI AC World index – has returned 119.51 per cent while residing in the third quartile for its maximum drawdown and annualised volatility. That said, it is in the second quartile for its Sharpe ratio and in the top quartile for its downside risk (which predicts a fund’s susceptibility to lose money during falling markets) over this time frame.
The fourth fund on the list with a 20.15 per cent UK exposure resides in the IA UK Equity Income sector; the four crown-rated Newton Global Income fund is £5.7bn in size and is headed up by Nick Clay and Ian Clark.
While the pair have only been running the fund since 2015 and 2017 respectively following the departure of James Harries, they have worked at Newton for a number of years. It should also be noted that Newton adopt a team-based approach to investing, rather than having one manager making most of the investment calls. As with most Newton funds, the managers adopt a top-down, thematic approach to portfolio construction which is often more cautiously positioned than many of its peers.
Over five years, the fund has outperformed its average peer and by 20.05 percentage points with a total return of 106.23 per cent. While it has performed broadly in line with the MSCI AC World index over this time frame, it has underperformed its FTSE World benchmark by 6.75 percentage points. That said, it has a significantly lower five-year maximum drawdown than its benchmark of 6.97 per cent.
Performance of fund vs sector, benchmark and index over 5yrs
Source: FE Analytics
Had an investor placed an initial £10,000 into the fund five years ago, they would have received £2,489.01 in income alone.
The fund on the list with the fifth-highest UK weighting at 19 per cent is star manager Terry Smith’s five crown-rated Fundsmith Equity fund, which has a highly concentrated portfolio of quality growth stocks based in developed markets.
Smith focuses on stocks with difficult-to-replicate advantages, a high degree of growth certainty from the reinvestment of their cash flows and are resilient to change. Examples of its largest holdings include US medical technology manufacturer CR Bard, European IT group Amadeus and US tech firm IDEXX.
Over five years, he has outperformed his sector average and MSCI World benchmark by a respective 90.1 and 67.36 percentage points with a total return of 183 per cent. The fund has done so with a top-quartile maximum drawdown, Sharpe ratio and downside risk.
Other funds on the list that have high crown ratings and are in the top quartile include Fidelity Global Dividend, Orbis Global Equity and Dodge & Cox Global Stock.