Global equity funds such as GAM Global Diversified, M&G Global Themes and SKAGEN Global have tended to deliver top-quartile returns in years when the value style of investing has beaten growth, according to FE Trustnet research.
The growth style of investing – or focusing on companies with above-average growth even if they appear expensive – has enjoyed a strong run in the 10 years since the global financial crisis, with the MSCI AC World Growth index making a 273.74 per cent total return. This was driven by central banks’ massive quantitative easing programmes, which effectively pushed investors out of the bond market and into ‘safer’ areas of the equity market, such as growth stocks.
The value style, on the other hand, sees investors look for stocks they think are undervalued by the market, holding them until they (hopefully) stop being unloved and start to outperform. However, this approach has been out of favour and the MSCI AC World Value index is up just 191.64 per cent over the past decade.
Performance of investment style by calendar year
Source: FE Analytics
Value’s underperformance of growth has been so extreme that some commentators expect the two styles to flip places and have been adding to value in anticipation of this. Central banks’ move away from quantitative easing and towards quantitative tightening is one of the catalysts that is expected to support this mean reversion.
With this in mind, FE Trustnet has reviewed the past 20 years in a bid to highlight the IA Global and IA Global Equity Income funds that have delivered some of their sector’s best returns when value has outperformed growth.
Our data reveals that the MSCI AC World Value index has beaten MSCI AC World Growth in nine of these years: 2000, 2001, 2002, 2003, 2004, 2006, 2008, 2011 and 2016. We then looked at how funds performed in each of these years, examining their quartile ranking and determining the average outcome across them.
Of the 57 global equity funds with a track record covering all nine years, only 10 have an average quartile ranking of less than two. The best result came from GAM Global Diversified.
GAM Global Diversified has been headed up by Ali Miremadi since the start of 2018; prior to this, Andrew C Green had been manager since 1984.
For the nine years when value outperformed, the £161.4m fund has an average quartile ranking in the IA Global sector of 1.44 after ending up in the top quartile in seven calendar years. Between 1 January 1999 and the end of November 2018, the fund made 402.11 per cent, ranking it eighth in the sector (where the average fund was up 195.47 per cent) and beating the MSCI World benchmark’s 233.06 per cent gain.
The fund has a bottom-up approach and looks for companies with “excessive negative sentiment and a catalyst for change”. Top holdings at the moment include US home construction and real estate company Lennar Corporation, Canadian fertiliser producer Nutrien and French bank BNP Paribas.
Performance of fund vs sector and index since 1 Jan 1999
Source: FE Analytics
Orbis Global Equity came in second place with an average quartile ranking of 1.56. The £69.5m fund was top quartile in five of the nine years that value has outperformed, making 561.06 per cent since 1 January 1999, the IA Global sector’s fourth highest return.
In the fund’s half-yearly update, Orbis highlighted its approach to investing: “We don’t view ourselves as ‘value’ or ‘growth’ investors. Instead, when we assess a share’s future return potential, the critical question is whether we can buy a company’s shares for much less than they are truly worth.
“As contrarians, we often find these opportunities arise in areas others have overlooked. While only time will tell whether these views are correct, we are confident that following our investment philosophy in a disciplined manner will bear fruit over the long run.”
Jamie Horvat’s M&G Global Themes fund also performed well in this research, with an average quartile ranking of 1.67 in the years that favoured value. The £2.1bn fund, which was called M&G Global Basics and had a slightly different area of focus prior to November 2017, aims to identify themes arising from long-term structural shifts, changes or trends; at the moment, it concentrates on four: health, security, infrastructure and environment.
Our research shows that four funds have an average quartile ranking of 1.78 in the nine years that value beat growth: Liontrust Global Income, Invesco Global Smaller Companies (UK), Investec Global Strategic Equity and SKAGEN Global.
SKAGEN Global is the largest of the four, with assets under management of £2.4bn. It is managed by Chris-Tommy Simonsen since April 2006 with Knut Gezelius joining as co-manager in May 2014. The portfolio is built around “low-priced, high-quality companies” with the aim of providing investors with the best possible risk-adjusted return.
The remaining three funds with an average quartile rank better than 2 in years of value outperformance are EdenTree Amity International, M&G Global Select and MFS Meridian Global Equity. They all scored 1.89 in this respect.
Source: FE Analytics
The research also shows which IA Global and IA Global Equity Income funds have ended up towards the bottom of their peer group in the years that value has outpaced the growth style.
Of the funds with a track record that includes all nine of these years, GAM Multistock Global Equity Income and Kames Global Equity both have an average quartile ranking of 3.67.
BMO Sustainable Opportunities Global Equity and Fidelity Global Focus, meanwhile, have a 3.56 average quartile ranking while AXA Framlington Global Thematics scored 3.44.