Report: AIC Global Growth

The AIC classification of global growth investment trusts only stipulates that they need to have less than 80% of their assets in any one geographical area, this rather loose guideline results in an extremely diverse mix of assets in this sector. Accordingly, although composed of only 33 trusts in total, (June 2008, Financial Express), there is little semblance between them. For instance, there are trusts that invest solely in US and UK equities and others that cover equities on every single continent or specialise in technology, energy and commodity investments around the world.

This variety allows for investors to choose from a relatively wide range of investment strategies. However, for some investors it is worth noting that over a 1/3 of trusts are heavily weighted in UK and US equities and are therefore less 'global' than some of their counterparts that are more geographically diversified. Hence, investors will want to ensure that they are getting true diversification when picking trusts in this sector, and not simply duplicating existing exposure to the UK & US equities.

Given the wide variation in asset allocation of global growth trusts, it is virtually impossible to establish an appropriate benchmark for this sector, albeit the MSCI world index or FTSE World can be used as a rough point of comparison to assess individual performance. This heterogeneity effectively renders many performance ratios such as alpha and beta unreliable, however it is still possible to glean some useful information from non-benchmarked indicators such as the returns, risk factors and asset allocation of particular funds.

When compared with returns on all the other 52 AIC sectors, global growth's 3 year sector average was ranked 19th in June 2008, returning 39.45% and outperforming the MSCI World Index by about 10%. On assessing individual trust's returns it is clear that there is a wide gap between the best-performer at 92.63%, and the worst-performer that gained a mere 3.74% over the same period.

Average sector volatility stood at 10.87% comparable to the 10.26% of the MSCI world index, with individual volatility ranging from 4.94-22.63%. Closer examination of risk Vs returns, reveals that the risk factor tended to follow the trusts' results, with the better performers posting volatilities towards the top end of the range at highs of 16-18%. Digging deeper into individual asset allocations of the best and worst performers, it is clear that the higher volatility that is observed in the best performers was mostly a result of their tendency to overweight their portfolios on emerging markets in Europe and Asia Pacific, whilst the worst performing trusts allocated more funds to UK and US equities thus achieving lower volatilities.

As of June 2008, the sector average discount over 3 years stood at 8.7%, with just 13 trusts trading above this average. As the subprime debacle continues to wreak havoc on financial markets, with a looming recession in the west and an economic slow down in the east, it seems that the prospects for global growth are rather poor. As a sector with the greatest total of assets under management, global growth investment trusts are likely to see further widening of their discounts as investors start to divert their funds to safer or more lucrative investments like bonds and commodities.

Source of all data: Financial Express Analytics