More than half of the IA Global funds that had the sector’s strongest three-year track records at the start of 2014 have managed to remain in the top quartile over the time since then, research by FE Trustnet shows.
Global equity funds have gone through a decent run in recent years with the average member of the IA Global sector generating a 75.55 per cent total return between 1 January 2011 and the end of June 2017.
While this is ahead of the 64.82 per cent made by the FTSE All Share over the same period, it’s important to note that it is well below the MSCI AC World index’s 94.75 per cent gain – which was largely driven by the outperformance of the US market.
Performance of sector vs index between 1 Jan 2011 and 30 Jun 2017
Source: FE Analytics
While global equities are a difficult arena for active managers, there are a number of funds that have sat at the performance tables for a lengthy amount of time. In this article, we attempt to find out if any of the highest returning funds from a few years have been able to stay at top of the table since.
When we recently ran the same study on the main UK equity sectors, we discovered that several funds were indeed at the top of their respective peer groups between 1 January 2011 and 31 December 2013 then remained there over the time since.
Looking at the IA Global sector, it appears that the majority of top quartile funds for the three years spanning 2011 to 2013 were also top quartile between 1 January 2014 and 30 June 2017.
FE Analytics shows there were 44 funds in the IA Global sector’s top quartile for the earlier three-year period. Of these, 24 – or 54.5 per cent – were in the top quartile for the latter period.
All 24 of these funds can be found in the table below, ranked by their total returns for the 1 January 2014 to 30 June 2017 period. As a point of interest, 13.6 per cent of the funds went into the second quartile, 15.9 per cent into the third and 15.9 per cent into the fourth.
Source: FE Analytics
The fund with the highest return over the most recent period – Morgan Stanley Global Opportunity – is headed up by Kristian Heugh and holds five FE Crowns for superior performance in terms of stockpicking, consistency and risk control over recent years.
The $2.3bn fund looks for high-quality established and emerging companies that its investment team believes are undervalued at the time of purchase, focusing on those with sustainable competitive advantages and long-term growth that creates value. Top holdings include Facebook, TAL Education Group and Amazon.
Its portfolio is relatively concentrated, comprising 31 holdings (compared with close to 2,500 in its benchmark), and its top 10 holdings account for 55.5 per cent of assets. Morgan Stanley Global Opportunity also has an active share of 95.31 per cent, suggesting significant differentiation from the index.
Performance of fund vs sector and index between 1 Jan 2011 and 30 Jun 2017
Source: FE Analytics
One notable feature of the table on the previous page is the presence of several specialist healthcare funds, which have enjoyed a strong run.
L&G Global Health & Pharmaceuticals Index was the highest return for the 1 January 2011 to 31 December 2013 period, while Schroder Global Healthcare was in second place and Fidelity Global Health Care was in fifth.
Some well-known generalist global equity funds have stayed very close to the top of the table over both periods we considered.
Fundsmith Equity is the sector’s third highest returner over the first period and the second-best performer over the latter. The fund is headed up by FE Alpha Manager Terry Smith and has proved to be a very popular offering for both professional and private investors.
Smith is another manager known for building a concentrated portfolio of quality stocks. With a preference for companies that can make sustainable returns on investors’ capital of over 10 per cent and attractive valuations, the portfolio’s top 10 includes the likes of Microsoft, Intercontinental Hotels and Philip Morris.
Old Mutual Global Equity was in fourth place for the first period and in fifth place for the second. While the funds highlighted so far have a clear bias in terms of either style or sector focus, this £679.6m portfolio aims to be as diversified as possible – across investment style, geographic region and sector.
The fund, which is managed by Ian Heslop, Mike Servent and Amadeo Alentorn, has a unique investment process that assess companies against criteria such as stock price valuation, balance sheet quality, growth characteristics, efficient use of capital, analyst sentiment and supportive market trends. It currently owns close to 500 stocks across its diversified portfolio.
Other notable funds on the list are seven with FE Alpha Managers at the helm, including Rathbone Global Opportunities, Baillie Gifford Global Alpha Growth and Morgan Stanley Global Brands.
As mentioned earlier, not all the funds that were in the top quartile between 1 January 2011 to 31 December 2013 remained there over the following period and seven fell into the bottom quartile – as shown in the table below.
Source: FE Analytics