Old Mutual Global Equity, GS Global CORE Equity and Invesco Perpetual Global Smaller Companies are among funds outperforming the MSCI World in each of the last three calendar years, according to the latest FE Trustnet study.
Data from FE Analytics shows that 10 funds have outperformed the index over the last three years, which have proven to be an unpredictable time for markets.
Having explored the UK funds outperforming the FTSE All Share last week, in this article we look at those in the global equity sectors.
Last year was a strong 12 months for global managers, with 68 per cent of funds in the IA Global and IA Global Equity Income sectors outperforming the MSCI World index.
Synchronised global growth came back for the first time since the before the global financial crisis of 2008, with out-of-favour areas such as Europe and emerging markets performing particularly strongly.
The next best calendar year of the prior three was 2015, when 43 per cent of funds outperformed the index, as the Japanese market rallied, with the Topix index returning 18.16 per cent.
However, in 2016 just 26 per cent of funds outperformed as the S&P 500 was the main driver of returns while the UK lagged.
One criticism of active global managers is that they can tend to have an overweight to the domestic UK market while underweighting the US, which makes up 52 per cent of the index.
With such changeable conditions it has been difficult for active managers to outperform consistently, with only 10 funds managing the feat.
Two index tracking funds – Vanguard Global Small-Cap Index and Vanguard FTSE Developed World ex UK Equity Index – also outperformed the MSCI World in each of the past three years but have not been included in this study.
It should be further noted that not all funds are benchmarked against the MSCI World index.
Table of outperforming funds in each of the last 3yrs
Source: FE Analytics
The largest of those listed above is the $4.2bn, five FE Crown-rated GS Global CORE Equity fund, a portfolio possessing the same style, sector, risk and capitalisation characteristics as the MSCI World benchmark but positioned to outperform through strong underlying stock and country selection.
The fund has returned 62.26 per cent over the last three years compared to the MSCI World’s 60.36 per cent.
It is among the funds included on the FE Invest Approved List, who highlighted the firm’s quantitative strategies team “unique approach”, using unstructured data to score global companies.
“Thanks to this data, the teams have developed thousands of signals that are aggregated to score global stocks according to three metrics: quality, value, and momentum,” the analysts noted.
“This is the only fund we have met offering exposure to machine-learning techniques, using images provided by satellite and so on and this compelling investment approach is additionally complemented by a robust risk management approach.
“Active investors might get disappointed with the low tracking error and limited industry or stock specific risks. Nevertheless, it allows investors to get a core exposure to global equities, with the potential for consistent excess gaining over the investment period.”
The fund has a clean ongoing charges figure (OCF) of 0.66 per cent.
The other Goldman Sachs fund on the list is the $520.5m GS Global Small Cap Core Equity Portfolio one of a number of small-cap funds making the list.
Indeed, Nick Mustoe’s, £821.3m Invesco Perpetual Global Smaller Companies and the $298.9m Schroder ISF Global Smaller Companies overseen by Matthew Dobbs and Richard Sennitt also outperformed.
Smaller companies strategies have become more popular in recent years as the global low growth environment has forced investors into higher risk assets.
Performance of indices over 3yrs
Source: FE Analytics
As such, smaller companies – which can grow faster and further than their larger counterparts – have benefited, with the MSCI World Small Cap index beating the broader MSCI World index by 8.51 percentage points over the three-year period.
The only other asset management firm with more than one fund on the list is Old Mutual Global Investors. The asset manager’s £822.2m Old Mutual Global Equity and $389.4m Old Mutual World Equity have both beat the MSCI World over the last three calendar years.
Managers Amadeo Alentorn, Ian Heslop and Mike Servent run both of the five FE Crown-rated funds and are diversified across quality, growth, value and momentum stocks because the managers see style-biased investing as the “Achilles heel of active investing”.
Over the three-year period the funds have made 64.25 per cent and 61.54 per cent respectively. Unlike other active equity funds that are managed with an emphasis upon qualitative decision-making, this fund is managed using a systematic process that uses rules and risk controls to make trading decisions in a methodical way.
In its latest research note on the Global Equity fund, analysts at Square Mile said: “Broadly speaking we would expect this fund to outperform the MSCI World index during periods of market growth as well as when markets are being driven by fundamentals.”
Old Mutual Global Equity has an OCF of 1 per cent while Old Mutual World Equity has an OCF of 1.13 per cent.
The best performing fund of those listed above however is the five crown-rated Sanlam Private Wealth Global High Quality run by Pieter Fourie and deputy manager William Ball.
The £214m fund has a benchmark agnostic, high-quality bias that may hold a maximum of 30 per cent in emerging markets.
It aims to invest in companies with predictable revenue growth that produces sustainable economic value over the long term.
Currently it is overweight consumer staples, technology and healthcare while it has zero weighting to oil, mining, industrials, telecoms, real estate and utilities.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Over three years, the fund has returned 69.62 per cent, the sixth best in the IA Global sector and top of our list. It has an OCF of 0.64 per cent.
Conversely, the only fund on the list not to make it into the top quartile of the sector over the period was the £494m M&G Global Leaders fund run by Aled Smith and deputy manager Gautam Samarth.
Despite beating the index in each calendar year, the fund sits in the second quartile over the period having made a total return of 52.57 per cent.
The manager invests in companies that he believes to be leading in their field, or have the potential to be leading in their field, in terms of improving return on capital through positive change, but where the change is not yet reflected in the share price.
The fund has a yield of 0.65 per cent and an OCF of 0.92 per cent.