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The global funds giving you the most alpha for your buck

In the second part of a series, FE Trustnet looks at the global equity funds which have generated the highest alpha through genuinely active stock selection while keeping their ongoing charges low.

Lauren Mason

By Lauren Mason, Senior reporter, FE Tru...
Monday July 17, 2017

Baillie Gifford Global Discovery, Lindsell Train Global Equity and Henderson Global Growth are among global equity funds that have generated the most alpha over five years while also keeping the ongoing charges figures (OCFs) well below average, according to research from FE Trustnet.

This comes as the second part of a series which aims to shine the spotlight on the managers offering investors the highest level of skill for the least possible money.

To do so within the global space, we calculated the average five-year alpha generation, information ratios and total returns of funds within the IA Global and IA Global Equity Income sectors relative to the MSCI AC World index. Full explanations of these metrics can be found in last week’s article.

We discounted any institutional, passive and theme-specific funds, as these would warp the average charge data and alpha generation (themed funds will naturally generate a lot of alpha relative to the index regardless of manager skill as their investable universes are different).

We also discounted Orbis Global Equity because it doesn’t have an OCF and costs are purely based on outperformance.

After finding the funds with above-average alpha generation and information ratios as well as below-average OCFs and a five-year outperformance of the MSCI AC World, we ‘double distilled’ the data by recalculating all averages once more and re-running the filters.

This resulted in a list of 21 funds, the top 10 of which are shown in the below table.

 

Source: FE Analytics

Of these, the fund that has achieved the highest outperformance relative to the MSCI AC World index is Baillie Gifford Global Discovery, which has an ongoing charges figure of 0.77 per cent.

The £266m fund, which is headed up by FE Alpha Manager Douglas Brodie, also has the highest alpha generation of any fund in the table of 8.95, which means it has generated an additional 8.95 per cent of extra value relative to the benchmark. It has an information ratio – which assesses the degree to which a manager uses skill and knowledge to enhance the fund returns – of 0.55. The FE Analytics glossary defines an information ratio of 0.5 as being ‘good’, 0.75 being ‘very good’ and 1 as ‘outstanding’.

Over five years, the fund has outperformed its average peer and the MSCI AC World index by 81.36 and 69.18 percentage points respectively with a total return of 171.89 per cent.

However, it should be noted that the fund is not benchmarked against the index and has a far greater focus on small-caps. It also has a notable bias towards high-growth tech stocks, with US firms iRobot, Tesla and fibre laser manufacturer IPG Photonics accounting for some of its 10 largest holdings.


The fund on the list achieving the second-highest return is Lindsell Train Global Equity, which also has an OCF of 0.77 per cent. The five crown-rated fund has an alpha generation of 6.38 and an information ratio of 0.78.

Managed by Michael Lindsell, James Bullock and FE Alpha Manager Nick Train, the £2.7bn fund aims to provide long-term capital appreciation through a highly-concentrated, low-turnover portfolio of companies with strong branding power. As with Train’s UK equity fund, it also has a bias towards consumer stocks with Unilever, Heineken Holdings and Diageo taking the top spots for the largest individual weightings.

Over five years, the fund has returned 152.8 per cent compared to its average peer and the MSCI AC World index’s respective returns of 90.53 and 102.71 per cent.

Performance of fund vs sector and index over 5yrs

 

Source: FE Analytics

In third place for its returns is Henderson Global Growth, which has an information ratio of 0.69, an alpha generation of 5.03 and an OCF of 0.85 per cent.

The four crown-rated fund is headed up by Ian Warmerdam and Ronan Kelleher, who aim to find companies with superior competitive advantages but are underappreciated by the broader market.

Their process results in a concentrated portfolio, which currently stands at 47 individual holdings.

Over five years, the £505m fund has outperformed its average peer and MSCI AC World benchmark by 62.12 and 49.94 percentage points respectively with a total return of 152.62 per cent.

The only fund on the list to achieve an information ratio greater than 1 is Artemis Global Growth, which also has the fourth-highest total return over five years of 144.63 per cent.

The £689m fund is managed by Peter Saacke, who aims to provide growth through a diversified portfolio of stocks; its top 10 holdings account for 14.4 per cent of the overall fund.

When selecting stocks, the manager uses Artemis’s SmartGARP system, which focuses on growth, value, estimate revision, momentum, top down and fund manager sentiment. All of these aspects to portfolio construction are taken into equal consideration, with the exception of ‘estimate revision’ which is double-weighted. It largest individual weightings include Apple, JPMorgan Chase and Siemens.


The only other fund on the list to come close to an information ratio of 1 is GS Global CORE Equity Portfolio at 0.91.

The five crown-rated fund, which is managed using a team approach, also has an alpha generation of 4.09 and an OCF of 0.7 per cent.

The $3.1bn Luxembourg-domiciled Sicav has a highly-diversified portfolio of 292 stocks and a high portfolio turnover rate of 148 per cent, with its list of top 10 holdings accounting for 10 per cent of the overall fund.

Over five years, it has returned 141.32 per cent compared to its sector average and benchmark’s respective returns of 90.53 and 109.98 per cent.

Performance of fund vs sector and benchmark over 5yrs

 

Source: FE Analytics

While this places it fifth on the list for its total return, Baillie Gifford International is just a few basis points behind with a total return of 140.22 per cent.

The £657m fund is managed by Charles Plowden, Malcolm MacColl and FE Alpha Manager Spencer Adair. It adopts a markedly long-term time horizon when it comes to stock selection, with each individual idea chosen on a minimum five-year view. As such, the portfolio’s annual turnover stands at an average of just 10 per cent. Some of the fund’s largest individual weightings include Amazon.com, Naspers and Royal Caribbean Cruises.

It has an alpha generation of 3.23, an information ratio of 0.59 and an OCF of 0.69 per cent.

Other funds on the list which have performed particularly well include Baillie Gifford Global Alpha Growth, Standard Life TM International, Threadneedle Global Extended Alpha and Dodge & Cox Global Stock.


This article is for professional investors only. You will be redirected to the News & Research homepage in seconds. If you are having problems getting to the page, please click here
Data provided by FE. Care has been taken to ensure that the information is correct, but FE 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.

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