When investing for the long term one of the principal benefits, apart from lower stress levels, is the avoidance of over-trading, which incurs extra costs and acts as drag on total returns as well as increasing the probability of buying or selling at the wrong time.
Many of the most successful equity funds are well known for their managers’ buy-and-hold mentality, which sees them ignore the ‘noise’ that causes markets to move in the short term and allows for compounding growth over the longer term.
Managers such as Terry Smith (pictured below) and Nick Train have a very low turnover of stocks in their respective funds and trusts and yet their strategies have paid off, having trounced their benchmarks and peers over the long run.
In fact in his Finsbury Growth & Income Trust, Train hasn’t bought a new stock for more than four years and neither has he sold one, yet he has made a positive return in eight out of the last 10 full calendar years as well as this year.
It is also top decile in the IT UK Equity Income sector over one, three, five and 10 years. This represents at least a doubling of the FTSE All Share in each of these time periods.
Performance of trust, sector and index since 2000
Source: FE Analytics
But several funds have an even longer term approach to investing but into their approach, such as the $4.4bn Pictet Global Megatrends fund which looks at theme that will shape the economy over decades to come.
It acts as a ‘best ideas’ vehicle for the suite of thematic funds the Swiss firm runs looking at long-term trends such as clean energy, security, water and luxury goods.
A spokeswoman for Pictet said: “A good example of well performing megatrends is the luxury sector. Investing in companies supplying luxury goods worldwide has so far been very rewarding and has benefited premium brands as a result of rising demand from a burgeoning middle-class in emerging markets. In the security sector, the market for advanced auto security equipment is expected to grow threefold to $10bn by the end of this decade and become a rich hunting ground for investors.”
“Another promising area of growth is ‘active safety technology’, or what the industry calls ‘advanced driver assistance systems’ - a market that is already worth $3.8bn. This is designed to help drivers avoid accidents, as opposed to ‘passive safety’ elements such as seat belts and airbags which simply reduce the effect of accidents.”
A further example of a trend the fund is backing is a belief that there is increasing commercialisation of national services from formerly state owned enterprises as governments worldwide look to outsource public services to the private sector.
Managed by Hans Peter Portner since launch in October 2008, the fund has consistently stayed ahead of the MSCI World index and has returned 138.24 per cent compared to a gain in the index of 96.82 per cent.
Performance of fund and index since October 2008
Source: FE Analytics
It is mostly exposed to the US, UK and Europe in names such Nike, Thermo Fisher Scientific and Macy’s.
The fund has a clean ongoing charges figure of 1.23 per cent.
The Fidelity Global Demographics fund also has a strategy focusing on secular global trends expected to affect global equity markets.
Launched in March 2012 it is managed by Hilary Natoff, with Aneta Wynimko joining as co-manager in February this year.
It has beaten the MSCI World index since launch by almost 14 percentage points, with a return of 57.04 per cent versus the 43.42 per cent gain by the index.
Performance of fund and index since March 2012
Source: FE Analytics
According to Natoff, healthcare and consumer goods are the two areas most exposed to demographics with three main global trends particularly pertinent: population growth, ageing populations and a growing middle class.
“By 2050 there will be an estimated 40 per cent more people rising to 9.6 billion and there will also be a 200 per cent increase in people in the 60 plus age range. In addition to this, there will be double the amount of city dwellers by 2050, each consuming four times the energy and 2.5 times the water that rural inhabitants consume on average,” she said.
“We are living 20 years longer on average compared with 50 years ago. There are twice as many over 65s than under-fives today – this will inevitably reshape consumption patterns. The middle class segment of the world will treble by 2050 to number 4.5 billion people in the emerging markets alone.”
“The structural growth trends that we favour in the fund will continue to support the earnings of the companies we invest in. Remember it is profits and not valuations in themselves that drive returns in the long run.”
The fund has an OCF of 1.24 per cent.
Randeep Somel took over sole responsibility of the £2.4bn M&G Global Basics fund from the long-serving Graham French back in November 2013.
While Somel has overhauled the fund’s portfolio he says the original objective of investing in the building blocks of the world’s economy remains unchanged with the manager expecting this process to provide outperformance ever the longer term.
One of his current themes, he says, is to find companies and sectors that are making money from the increasingly wealthy emerging market consumer.
The fund is still in positive territory since the Somel took over but only just with a return of 2.99 per cent. This puts in the bottom quartile of the IA Global sector
Performance of fund and index since November 2011
Source: FE Analytics
The fund has historically had a high weighting to emerging markets and commodity-related equities, two areas of the market which have been particularly out of favour over since Somel took charge.
The manager has been steadily reducing exposure to consumer products of late at the same time as upping US equity exposure.
The FE Research team said: “While the portfolio has moved a little bit further up the curve of economic development, with luxury company Prada recently bought being a good example of the fund moving away from miners and processing plants, Somel has stuck to the fund’s ethos while adding some diversification.”
“For example he sold a couple of copper mining companies to invest in BHP Billiton, whose operations include metals, minerals, and petroleum. The fund remains differentiated from the average fund in the IMA Global sector, thanks to its small allocation to financial or telecom, media and technology companies; it remains focused on a global economic recovery, not just a market recovery.”
The fund has an OCF of 0.92 per cent.