While UK funds remain popular with UK investors and are arguably still over-represented, more and more investors are looking further afield in order to protect themselves from single-market risk.
It is possible to hold a fund in the IMA Global or IMA Global Equity Income sectors, which invest across geographical regions. However, there are certain risks associated with these portfolios.
The vast majority of funds in these sectors have a developed market-bias, as countries like the UK and US make up a large chunk of the MSCI World index.
There is also the argument that global managers have less of an understanding of individual regions than those who are more specialised. If an investor only holds a single fund, they always run the risk of the manager getting things wrong.
For those prepared to do a bit of extra research, they can build their own equity portfolio using funds from the four main regional sectors – UK, Europe ex UK, North America, Japan – and IMA Global Emerging Markets.
Here are funds from each sector that score highly in FE's ratings.
UK:
JOHCM UK Equity
- FE Crown Fund Rating: 4
- FE Alpha Manager Rating: No
- Constituent: AFI Cautious, Balanced and Aggressive
There are a number of very strong funds that deliver growth and others that deliver high levels of income.
There are some, however, that tap into both. One such fund is the JOHCM UK Equity Income fund, which is managed by Clive Beagles and James Lowen.
The £1.4bn fund holds a mixture of dividend-paying small, mid and large caps. The larger companies provide stability, while the smaller names give it a growth boost – particularly in rising markets.
Among its largest holdings are healthcare blue chip GlaxoSmithKline and packaging business DS Smith, which is a constituent of the FTSE 250.
This combination has worked very well: according to FE data, it is among the top 10 per cent of its sector in terms of total returns over one, three and five years, and since its launch in November 2004.
Performance of fund vs sector and index over 5-yrs
| Name | 1-yr returns (%) |
3yr returns (%) | 5yr returns (%) |
|---|---|---|---|
| JOHCM - UK Equity Income | 23.31 | 53.79 | 70.99 |
| FTSE All Share |
12.73 | 40.99 | 32.44 |
| IMA UK Equity Income | 15.35 | 40.24 | 28.96 |
Source: FE Analytics
With gains of 70.99 per cent over five years, it has made more than double the returns of its IMA UK Equity Income sector average and FTSE All Share benchmark.
It is currently yielding 4.6 per cent, which is a touch above average for a UK Equity Income fund; however, its small to mid cap overweight means that it is more volatile than its sector and index and tends to lose more during down markets.
JOHCM UK Equity Income requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.28 per cent. However, this includes a performance fee of 15 per cent on any returns in excess of its FTSE All Share benchmark, on an annual basis.
It is in all three of the Adviser Fund Indices (AFI), which are made up of funds recommended by high-profile professionals in the industry. It has four FE Crowns.
Neither Beagles nor Lowen are FE Alpha Managers, but have a chance to put that right when the list of elite names is updated next week.
Europe ex UK:
BlackRock European Dynamic
- FE Crown Fund Rating: 5
- FE Alpha Manager Rating: Yes
- Constituent: AFI Aggressive Index
It is among the top-three best-performing funds in IMA Europe ex UK over three, five and 10 years.
Over the last decade, it is up 387.77 per cent, compared with 173.45 per cent from its sector average and 188.92 per cent from its FTSE World Europe ex UK benchmark.
No European fund has returned more.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Hibbert is an out-and-out stockpicker, with a portfolio of around 40 holdings. Only two of these – Novo Nordisk and Compagnie Financiere Richemont – make up more than 5 per cent of AUM.
The five crown-rated fund, which has £1.4bn in assets under management (AUM), is part of the AFI Aggressive portfolio.
It requires a minimum investment of £500 and has a TER of 1.67 per cent.
North America:
GAM North American Growth
- FE Crown Fund Rating: 5
- FE Alpha Manager Rating: Yes
- Constituent: No
Among the top-rated funds, according to FE, is GAM North American Growth, which has five FE Crowns and is headed up by long-standing FE Alpha Manager Gordon Grender.
The £144m fund is a concentrated portfolio of around 25 stocks. It targets long-term growth through the manager’s extensive bottom-up stockpicking process.
Grender’s high-conviction strategy has worked well: according to FE data, the fund is up 154.18 per cent over 10 years, beating its S&P 500 benchmark by more than 60 percentage points and its IMA North America sector average by more than 50.
It has also been less volatile and has emphatically beaten both the sector and index over one, three and five years.
Grender has headed up GAM North American Growth fund since 1985. It requires a minimum investment of £6,000 and has a TER of 1.57 per cent. It does not appear in any AFI portfolios.
Japan:
CF Morant Wright Nippon Yield
- FE Crown Fund Rating: 5
- FE Alpha Manager Rating: No
- Constituent: AFI Balanced and Aggressive Indices
Moreover, Japan’s low correlation to other markets means it is a good diversifier.
One of the best-performing portfolios in the sector over recent years is CF Morant Wright Nippon Yield, which is part of the AFI Balanced and Aggressive portfolios.
Since its launch in September 2008, it has returned 109.16 per cent, comfortably beating its IMA Japan sector average and Topix benchmark, which are up 24.97 and 21.38 per cent respectively.
It has been a bit more volatile, but has the added bonus of offering investors a yield – currently 2.95 per cent.
The fund seeks to deliver total returns by investing in undervalued Japanese companies that have strong balance sheets, sound business franchises and attractive dividend yields.
Its biggest sector weightings are currently industrials and distributors, which make up around 43 per cent of the portfolio.
The £30m fund requires a minimum investment of £5,000 and has a TER of 1.91 per cent. It is team-managed and so does not qualify for FE Alpha Manager status.
Emerging markets:
Aberdeen Emerging Markets
- FE Crown Fund Rating: 5
- FE Alpha Manager Rating: No
- Constituent: AFI Balanced and Aggressive
For the sake of being well diversified, one option is an IMA Global Emerging Markets fund.
Many of the best options in this sector are either closed to new investors, or in the process of doing so, which leaves them with few opportunities.
However, while the Aberdeen Emerging Markets fund is no longer being marketed by the group, it is still open to new investors either directly or through a platform – as reported by FE Trustnet late last year.
The initial charge is set to rise to 2 per cent on 1 March this year, in a further bid to reduce inflows into the fund, so investors need to move quickly if they want to avoid this added cost.
The £3.4bn portfolio has a record that is second to none, delivering top-decile returns in the IMA Global Emerging Markets sector over three, five, 10 and 20 years.
In the last decade it has returned 630.63 per cent, making it one of the best-performing funds in the entire industry. Needless to say, it has significantly beaten both its sector and benchmark over this period.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
As well as being a top-performing fund, it has also been one of the least volatile and has consistently outperformed in falling markets.
The management team targets quality companies with strong cash-flows and good balance sheets, and has a very strict filtering process.
The fund sits in the AFI Balanced and Aggressive portfolios, but given its focus on emerging markets, it does not qualify for the Cautious portfolio.
Aberdeen Emerging Markets requires a minimum investment of £500 and has a TER of 1.93 per cent. It is team managed, so again the FE Alpha Manager rating does not apply.
To find other funds that are rated highly by the various FE ratings systems, click here