However, as a recent FE Trustnet study revealed, many global funds are so correlated to their UK-focused rivals that the idea of diversification is in many ways a fallacy.
The high correlation between global markets and the unwillingness of fund managers to venture away from their benchmark has resulted in an almost direct correlation between the IMA UK All Companies and IMA Global sectors.
However, it is still possible to find global funds that are less aligned to the UK market. Here FE Trustnet looks at three in more detail.
Bedlam Global Income
This £12m vehicle is unlikely to be on the radar of the vast majority of UK investors, but it has been a very strong performer since its launch in May 2006.
Managers Felicity Smith and Richard Greenwood take very punchy off-benchmark bets when running the fund, with huge skews towards certain global markets. Relative to their MSCI AC World benchmark, they are more than 20 percentage points overweight Europe ex UK, and more than 30 percentage points underweight the US.
Overweight positions also include Africa and the Middle East, which currently has a 7 per cent weighting in the portfolio.
The duo also have some big sector bets, with significant overweight positions in telecoms and media, and underweight positions in financials.
This high-conviction approach has led to both strong returns and a below-average correlation to the UK market. According to FE data, the fund has a correlation of 0.73 to the IMA UK All Companies sector over a three-year period, and 0.76 to the IMA UK Equity Income sector.
The fund had a very poor 2006 and 2007, but has recovered since Smith and Greenwood took over in June 2007 and October 2008, respectively.
Bedlam Global Income has beaten its sector and benchmark over one, three and five years, and has a particularly good record over three years.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Bedlam Income targets a yield of 4.5 per cent and pays out dividends quarterly. It is currently yielding 4.9 per cent.
It requires a minimum investment of £3,000 and has an ongoing charges figure (OCF) of 1.31 per cent.
FE Trustnet will talk to Felicity Smith about her fund in more detail later on today.
GAM Global Diversified
FE Alpha Manager Andrew C Green has headed up the £300m GAM Global Diversified fund since 1984, making him one of the longest-serving managers in the industry.
Green is a bottom-up value investor, seeking regions and companies that are out of favour with the wider market, but that are set for a turnaround in performance.
This process has resulted in the fund being lowly correlated to both his own IMA Global sector and the UK All Companies sector on a consistent basis: FE data shows that GAM Global Diversified has a correlation of 0.82 to the IMA UK All Companies sector over a three-year period, 0.88 over five years, and 0.82 over 10.
Green has a significant overweight in Japan at the moment, which makes up 28 per cent of the portfolio. He is underweight both the US and UK, preferring to hold cash, which has a 20 per cent weighting.
GAM Global Diversified has consistently beaten its sector and benchmark, achieving top-quartile returns over one, three, five and 10 years.
Performance of fund vs sector and index over 10yrs
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| GAM Global Diversified | 39.89 | 34.34 | 45.8 | 153.09 |
| MSCI World | 24.24 | 33.22 | 41.21 | 112.96 |
| IMA Global | 22.09 | 26.29 | 28.07 | 109.98 |
Source: FE Analytics
It requires a minimum investment of £6,000 and has an OCF of 1.57 per cent.
S&W Kennox Strategic Value
S&W Kennox Strategic Value is a high-conviction portfolio that invests in just 26 holdings.
This, along with its unconstrained approach to investing in regions and sectors, has contributed to its very low correlation to the UK market. According to FE data, it has a correlation of 0.8 over three years, and just 0.7 over five.
Manager Charles Heenan is a deep-value investor, and usually outperforms during falling markets because the companies he owns tend to have already fallen a great deal.
The £168m fund was number-one in the IMA Global sector in 2008, for example, with gains of more than 6 per cent, compared with losses of 24.32 per cent from the sector average.
The fund has beaten its sector consistently, with the biggest margin of outperformance coming over five years.
Performance of fund vs sector over 5yrs
Source: FE Analytics
It requires a minimum investment of £6,000 and has an OCF of 1.57 per cent.
