Fundsmith Equity is the most consistent IA Global fund of the past decade, beating the MSCI World index – the most common benchmark in the sector – in nine of the past 10 calendar years.
In joint second place are Liontrust Sustainable Future Global Growth and Vanguard FTSE Developed World ex-UK Equity Index, which beat the benchmark in eight of the 10 years.
Source: FE Analytics
Of the 192 funds in the sector with a track record long enough to be included in the study, a further 23 beat the index in seven years.
Fundsmith Equity focuses on a small number of high-quality, well-established companies with strong balance sheets, which manager Terry Smith believes will generate superior returns over the long term.
His process begins with a filter to highlight companies with enduring profitability, attractive free cash-flow yields and low levels of operational and financial leverage. This reduces the investment universe of more than 60,000 listed global companies to fewer than 100.
Smith also looks for companies with one or more intangible assets such as brand names, patents, licences or distribution networks.
The team at Square Mile Investment Consulting & Research said that this fund “has many qualities”.
“In setting up the Fundsmith business, Smith has attempted to deliver a wholly transparent investment proposition and thus far we believe that this has been achieved,” it said.
“The fund's ongoing charge figure (OCF) is slightly higher than many competitor strategies, but in this instance we would argue a premium is very much warranted.”
Fundsmith Equity made 417.53 per cent over the 10-year period in question, compared with 193.53 per cent from the benchmark and 147.69 per cent from the sector.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Despite its strong performance, Charles Stanley Direct dropped the fund from its buy-list in 2019, due to concerns over its size and the potential impact on liquidity – its assets under management now stand at £23bn. However, these concerns were dismissed by most other fund selectors, who pointed out Fundsmith Equity mainly invests in highly liquid large- and mega-cap stocks.
The fund has ongoing charges of 1.05 per cent.
Next up is Liontrust Sustainable Future Global Growth, managed by Peter Michaelis, Simon Clements and Chris Foster.
Their process is based on the belief that the companies that will survive and thrive in the long term are those that improve people’s quality of life, be it through making medical, technological or educational advances; driving improvements in the efficient use of scarce resources; or helping to build a more stable, resilient and prosperous economy.
The managers begin with a thematic approach, identifying the key structural growth trends that will shape the global economy of the future.
Companies identified by the process exhibit three characteristics: excellent management and core products or services that are making a positive contribution to society; strong growth prospects; and a business model that enables them to grow profitably from these trends and generate competitive returns.
Liontrust Sustainable Future Global Growth made 273.68 per cent over the 10-year period in question. The £1.2bn fund has ongoing charges of 0.89 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
In the previous study in the series, focused on the IA UK All Companies sector, two Liontrust funds finished in joint second place with Lindsell Train UK Equity after beating the FTSE All Share index in nine of the past 10 calendar years.
Last up is Vanguard FTSE Developed World ex-UK Equity Index, a tracker fund. The reason it has been able to consistently outperform the MSCI World is that it focuses on a different index, which excludes the UK.
The home market has lagged behind its global equivalent over the 10-year period in question – the FTSE All Share made 71.91 per cent over this time compared with 193.53 per cent from the MSCI World index.
While the FTSE All Share made up just 4.33 per cent of the MSCI World index as at the end of last year, the tracker only beat the index by a marginal amount in each of its eight successful years. Its largest outperformance came in 2020, when the UK index fell 9.82 per cent, while its global counterpart made 12.32 per cent.
Vanguard FTSE Developed World ex-UK Equity Index made 207 per cent over the 10-year period. The £9.4bn fund has ongoing charges of 0.14 per cent.
It is worth noting that Vanguard Global Stock Index, which aims to follow the MSCI World, underperformed this benchmark in every one of the past 10 calendar years. It beat the IA Global sector in eight of the past 10 calendar years, however.
Three active funds – MI Charles Stanley UK & International Growth, Jupiter Merlin Worldwide Portfolio and BlackRock Global Equity – also underperformed the index in every one of the past 10 calendar years. The first two of these are funds of funds, which tend to have higher-than-average charges.