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The top-rated global funds embracing volatility to drive higher returns

04 July 2017

FE Trustnet examines the top-rated outperforming funds over the last decade with a higher risk mandate than the market.

By Jonathan Jones,

Reporter, FE Trustnet

Delivering solid returns from global portfolios has been difficult for some managers to master, with less than a third of funds in the IA Global sector outperforming the MSCI AC World index over the past decade, according to the latest FE Trustnet study. 

Outperforming the index has been particularly challenging thanks in part to the strong rise of the S&P 500, which currently makes up 52.56 per cent of the index.

Now, with valuations now at record highs – not just in the US but globally – many investors have been seeking lower risk assets to see them through what could be a potentially difficult period for markets.

However, some funds have proven adept at managing higher risk to provide genuine alpha and generate higher returns.

Previously, we looked at the UK funds run by FE Alpha Managers with an FE Risk Score of more than 100 that have managed to outperform the market and sector with a top quartile high Sharpe ratio score – a measure of risk-adjusted returns.

Below we look at the top-rated global funds, either run by FE Alpha Managers or that hold a five crown-rating.

The FE Risk Score is a measure of volatility relative to the FTSE 100 index over three years – with a score of more than 100 showing a fund has taken on a higher level of risk than the market.

The Sharpe ratio shows how much excess return an investor is receiving for the extra volatility taken by holding a riskier asset.

 

Baillie Gifford International

The first fund is the £660m Baillie Gifford International fund run by Charles Plowden, Malcolm MacColl and FE Alpha Manager Spencer Adair.

The fund, which is benchmarked against the MSCI AC World ex UK, invests with long-term perspective and has an annual turnover of 10 per cent.

As the below shows, the fund has returned 184.53 per cent over the last decade, beating the benchmark and sector by 55.88 and 92.98 percentage points respectively.

Performance of fund vs sector, benchmark and MSCI AC World over 10yrs

 

Source: FE Analytics

The fund, which can hold up to 20 per cent more than the index weight in a region, is currently 49.4 per cent weighted to the US, with Amazon, Alphabet and Moody’s among its top 10 holdings, with 19.6 per cent in Europe ex UK and 19.5 per cent in the emerging markets.


It looks to invest in companies able to grow their earnings and cashflow above the average and uses three criteria to do so – the opportunity available to the company, the management team and the valuation of the business.

The fund has an FE Risk Score of 110 compared to the MSCI AC World index, which has a score of 102 and the IA Global sector average of 91.

As well as producing a top quartile return in the sector, has a Sharpe Ratio of 0.46. This is 0.12 above the MSCI AC World index and double the average peer in the IA Global sector.

However, the fund has been more volatile (16.36 per cent) than the sector (14.11 per cent) and index (14.37 per cent).

Baillie Gifford International has a clean ongoing charges figure (OCF) of 0.69 per cent and a yield of 0.4 per cent.

 

Invesco Perpetual Global Opportunities

Next in this study is the Invesco Perpetual Global Opportunities, which has an FE Risk Score of 115 and is run by FE Alpha Manager Stephen Anness.

The £221m fund, which is benchmarked against the sector, has returned 136.33 per cent over the last decade, with a Sharpe Ratio of 0.37 – above both the market and the sector.

Performance of fund vs sector and MSCI AC World over 10yrs

 

Source: FE Analytics

It is managed with a high conviction approach and an unconstrained mandate to invest in ideas from anywhere in the world. Currently the fund is made up of 41 holdings.

Anness became the named manager on the fund, which was previously managed by the Invesco Perpetual Global Equity Group, and has also been run by Paul Boyne and Bob Yerbury and Derek Izuel for periods over the last decade.

In the fund’s latest factsheet, the manager said that while global equities ended May just shy of a record high, potential headwinds to the global growth story remain.

He said: “Elections in the UK, Germany and Italy are looming as Brexit negotiations begin, while in the US president Trump’s ability to implement spending and tax-cut plans is far from certain.”


Yet he pointed to improving data on US consumer spending and a more robust US economy that grew more strongly in the first quarter than previously thought means that the US is poised to lead a global recovery.

The fund is 30.73 per cent invested in the US, with 24.1 per cent in the UK and 11.42 per cent weighted to German stocks. Its largest sectorial weighting is to financials at 30.25 per cent.

The fund, which has been slightly more volatile than the market and sector (14.64 per cent) has an OCF of 0.95 per cent and a yield of 0.81 per cent.

 

GS Global CORE Equity Portfolio

The final fund is the five crown-rated GS Global CORE Equity Portfolio which is run by a team of analysts and therefore has no named managers.

FE Crown Fund Ratings highlights funds that have strongly outperformed their benchmark and those that have not, with the top 10 per cent of funds awarded five FE Crowns.

The fund, which is benchmarked against the MSCI World rather than the MSCI AC World, meaning it only invests in the developed markets and not the emerging markets.

It has been a top quartile performer in the IA Global sector over the last decade, returning 133.57 per cent.

Performance of fund vs sector, benchmark and MSCI AC World over 10yrs

 

Source: FE Analytics

The $3bn fund, which has an FE Risk Score of 106, has also been more volatile (14.72 per cent) than both the sector and the MSCI AC World index.

The fund is 66.5 per cent weighted to the US, with eight of its top 10 holdings domiciled in the country. It has 19.7 per cent in Europe ex UK and a 7 per cent weighting to Japanese stocks.

GS Global CORE Equity Portfolio has an OCF of 0.7 per cent.

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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.