A portfolio evenly split between the average funds in eight regional sectors weighted according to the current asset class weightings of the IMA Global sector has lagged the average Global portfolio since the start of the year, gaining 11.66 per cent while Global funds have gained 13.39 per cent.
Global funds have also outperformed over one year and held steady with the regional funds over three. However, the regional portfolio beat the sector by 7 percentage points over five years.
Our research also shows that if investors had put their money in a portfolio of top-rated regional funds with five FE Crowns to their names they would have done even better. The portfolio of funds has outperformed all but two Global portfolios over a five year period.
Performance of portfolio vs top IMA Global sector funds over 5 yrs
| Name | 5-yr returns (%) |
| L&G Global Health & Pharmaceutical Index | 95.7 |
| Schroder Global Healthcare | 95.58 |
| Top-rated regional portfolio | 95.15 |
| Morgan Stanley Global Brands | 88.44 |
| McInroy & Wood Smaller Companies | 81.84 |
| FF Global Consumer Industries | 80.94 |
| FF Global Health Care | 76.3 |
Source: FE Analytics
Since FE Trustnet last took a look at the Global sector in October last year, the global sector has increased its weighting to North America, to 47 per cent from 45 per cent, and reduced its exposure to Japan, to 5 per cent from 7 per cent. Other allocations have remained nearly the same, with 16 per cent in the UK, 14 per cent in Europe ex UK and 4 per cent in emerging markets.
The average commodities fund holds 5 per cent while IMA Money Markets has 3 per cent.
While the spread between the average global portfolio and regional portfolio is narrowing, the outperformance is still pronounced when looking at top-rated regional and global funds.
Using the weightings above, a portfolio of five crown-rated regional funds has more than doubled the returns of the average five crown-rated Global fund over a five year period.
Performance of portfolio over 5 yrs
Source: FE Analytics
The regional portfolio also comes out on top over one and three years.
However, over the last six months, the global portfolio has overtaken the top-rated regional portfolio, returning 16.51 per cent while the regional portfolio gained 15.18 per cent, according to FE Analytics.
The elite global portfolio includes the $4.4bn Aberdeen Global Asian Smaller Companies, £182.5m GAM North American Growth and £56.1 MFM Slater Growth funds.
The GAM and Slater portfolios are both headed up by FE Alpha Managers – Gordon Grender in the case of the GAM portfolio and Mark Slater for the Slater Growth fund – while the Aberdeen fund is led by the firm’s renowned global emerging markets team.
Spreading your investments across a wide range of geographies and sectors can help to dampen the volatility in a portfolio, and in this respect, the regional portfolio came out on top as well.
Over the last five years, the top-rated portfolio of regional funds had an annualised volatility score of 14.03 per cent, compared with 17.49 per cent for the average top-rated global fund.
The average regional portfolio was roughly even with the IMA Global sector in terms of volatility, with the Global sector being slightly less volatile over five years.
Rob Gleeson (pictured), head of FE Research, says the recent surge in performance from global funds is likely due to global managers shifting their allocation more quickly than investors in a regional portfolio.
“A global manager is better equipped for that than an investor, which is what you’re seeing now,” he said. “An investor will have likely just let their allocation ride.” However, he says over the long-term the flexibility to move between regional funds will pay off.
“If you think the diversification benefits overall are going to pay dividends, then you’re better off in a regional portfolio,” he said.
Diversification is one of the biggest arguments for a global portfolio – with a geographical spread that makes it less correlated to a single country or index – but Gleeson says this is in fact a disadvantage for global funds.
“There is more opportunity to diversify in a series of regional funds than in one global fund,” he said.
Gleeson previously said that the wide spread of geographies often left global teams stretched in terms of coverage, rather than benefitting from the directed and specialised knowledge of a dedicated team – such as North America or emerging markets.