Baillie Gifford, Schroders and Vanguard are among the fund groups to produce top-returning global funds that don’t cost the earth, data from Trustnet has found.
In the first of this new series, Trustnet looked at all the funds in the IA Global sector and filtered down the active funds with both top-quartile performance over the past five years and top-ranked low ongoing charges figures (OCF).
The cost of an investment is a key factor in long-term total returns. Investors who pick passive strategies with low ongoing charges are expected to benefit the most from this reduced cost over time, but investors can get both top-ranked returns and low costs from active strategies.
Overall there were six strategies that have the lowest relative charges in the IA Global sector, whilst also being the best performers.
Brown Advisory Global Leaders
The cheapest active fund that made the cut was the £1.8bn Brown Advisory Global Leaders fund. Run by Mick Dillon and Bertie Thomson, it returned 104.9% over the period and has an OCF of 0.37%.
The fund takes a concentrated approach to global equities, holding between 30 and 40 companies at any one time and buys franchises that the managers believe “deliver exceptional outcomes for their customers and outstanding economics for shareholders”.
They have the view that a concentrated low turnover portfolio of leading global companies produces good risk-adjusted returns in the long-run, aiming for a turnover of 20%.
However, the past 18 months was a period of “high market inefficiency”, the managers said, which meant that the fund had more acquisitions and disposals than usual. Transaction costs are not included in a fund’s OCF.
Its top-10 make up almost half of its entire portfolio, with its biggest three positions in Microsoft (9.4%), Alphabet (6.2%) and Visa (5.8%), all of which have been top performers over the past five years.
Baillie Gifford Global Stewardship
The fund with the highest returns over the past half-decade was the £807m Baillie Gifford Global Stewardship fund, run by Matthew Brett, Gary Robinson, Iain McCombie, Mike Gush and Zaki Sabir. It returned 163% but has also kept costs low for investors, with an OCF of 0.53%.
Much like many of the other funds at Baillie Gifford, it has a high-growth, long-term stock picking approach. Unlike the Brown Advisory fund above, it is a more diversified portfolio, with between 70 and 100 stocks underlying holdings.
The fund keys in on responsible investment, sustainable growth and ESG factors, with the managers applying ‘sin sector’ exclusions and investing in companies that they deem to have a net benefit to society, an ability to balance the interests of all stakeholders, and exhibit a responsible culture.
The managers said: “With the right culture, companies can transform societies and economies, usually for the better, and we believe that will be a source of fantastic investment returns in the years to come.”
Baillie Gifford Global Alpha Growth and Baillie Gifford International
The £4.5bn Baillie Gifford Global Alpha Growth fund and the £1.9bn Baillie Gifford International fund were the two other Baillie Gifford strategies that featured. The former returned 133% while the latter returned 116% over five years. They both have an OCF of 0.59%.
Run by Spencer Adair, Malcolm MacColl and Helen Xiong, the funds follow the Baillie Gifford approach of buying and holding high growth stocks over the long-term.
Both funds hold between 70 and 120 stocks and invests globally, although the international fund excludes stocks from the UK. Global Alpha Growth has over 6% of its portfolio invested in the UK – with London-listed Prudential appearing in its top-10 holdings.
Both funds are heavily tilted towards North America with more than half their assets invested, and include names such as Microsoft, Alphabet and Moderna in their top-10 holdings.
Schroder Global Equity
Another fund that emerged from the filter was the £1bn Schroder Global Equity fund run by FE Alpha Manager Alex Tedder. It returned 95% over five years and has an OCF of 0.52%.
This fund holds roughly 150 companies in its portfolio and aims to invest in stocks with strong growth expectations that aren’t yet recognised by the wider market.
The managers identify companies they believe can deliver forward earnings growth that will exceed the market’s expectations – otherwise known as stocks with a positive ‘growth gap’.
This growth gap is a result of markets over-reacting to short-term news, markets’ over-reliance on historic growth and failure to identify catalysts that change growth trajectories, as well as markets not looking far enough ahead when assessing the earnings power of companies.
Vanguard Global Equity
The £321m Vanguard Global Equity fund was another top performer, delivering 85% over the period with an OCF of 0.48%.
As part of Vanguard’s active business, it is co-managed by Baillie Gifford and Wellington Management Company.
The Baillie Gifford component is run by the Baillie Gifford Global Alpha Growth team, whilst the Wellington component is run by a team focused on a value-driven investing strategy.
Wellington typically invests in large-cap companies with a market capitalisation above $500m that are trading at a discount to the market, balancing out the growth-heavy part of the portfolio run by Baillie Gifford.