Morgan Stanley Global Brands, BNY Mellon Long Term Global Equity and Veritas Global Focus are among some of the few global equity funds to have exceeded investors’ annualised return expectations over the last decade, according to data from FE Analytics.
This follows asset manager Schroder’s latest Global Investor Study which, as explored in an FE Trustnet article published last week, found that UK investors expect an average of 8.7 per cent annual returns from their portfolios.
While this may seem high, it is lower than the global average expectation of 10.2 per cent. Given that many global equity funds struggle to outperform the MSCI All Country World index at the best of times, we decided to re-run our data in relation to funds in the IA Global and IA Global Equity Income sectors to see which of them have, on average, exceeded this expectation over the past decade.
To ensure that each fund was also in-line with risk expectations (the study found that certainly UK investors are more risk averse than they were last year), we also filtered through to the funds which have achieved a lower maximum drawdown (which measures the most money if bought and sold at the worst possible times), a lower downside risk ratio (which predicts susceptibility to lose money during falling markets) and a lower annualised volatility than the index over the last decade.
From these, we also stripped out any sector-specific funds as it would be unfair to directly compare them to the MSCI AC World index. Out of an initial 152 funds with long-enough track records, we were left with a total of seven funds as shown in the below table. Of course, these should be viewed with the usual caveat that past performance is no guide to future returns.
Source: FE Analytics
As shown above, the global equity fund with the highest average annual return over the last decade at 13.6 per cent is Morgan Stanley Global Brands, which has four FE Crowns and is headed up by FE Alpha Manager William Lock.
The £966m fund also has a 10-year maximum drawdown of 15.1 per cent compared to the index’s drawdown of 34.3 per cent, an annualised volatility of 13.01 per cent compared to the index’s 14.38 per cent volatility and a downside risk ratio of 13.11 compared to the index’s downside risk of 15.8.
The fund has a concentrated portfolio of 27 holdings which are chosen – as its name suggests – based on the recognisability and sustainability of their branding power. Examples of its largest holdings include Unilever, British American Tobacco and Irish global management consulting company Accenture.
In total return terms, the fund has outperformed its average peer and MSCI World benchmark by 144.48 and 101.1 percentage points respectively with a total return of 245.26 per cent.
Next on the list for its average 10-year annual return of 11.9 per cent is the five crown-rated Veritas Global Focus fund, which is managed by FE Alpha Manager duo Andrew Headley and Charles Richardson. Over the same time frame, it has a maximum drawdown of 20.66 per cent, an annualised volatility of 13.32 per cent and a downside risk ratio 13.25.
The fund, which also consists of 27 holdings, aims to provide long-term capital appreciation through a portfolio of stocks which are selected on a bottom-up basis. Its largest individual constituents include US telecoms company Comcast, French aerospace-component company Safran and French aeronautical product manufacturer Airbus.
Over the last decade, the £2.8bn fund has returned 190.9 per cent compared to its average peer and benchmark’s respective returns of 100.78 and 144.16 per cent.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
In bronze place on the list is the four crown-rated Russell Investments II World Equity fund which, over the last decade, has achieved an average annual return of 11.58 per cent.
Headed up by Phil Hoffman since 2015, the £1.3bn fund has a 10-year annualised volatility of 14.15, a maximum drawdown of 30.74 per cent and a downside risk ratio of 12.9. Investors should note, however, that the Ireland-domiciled fund is unavailable on most investment platforms.
Next up is the Luxembourg-domiciled MFS Meridian Global Equity fund, which has five FE Crowns and is headed up by David Mannheim, FE Alpha Manager Roger Morley and Ryan McAllister.
It has an average annual return of 11.4 per cent over 10 years and, over the same time frame on a total basis, it has a downside risk ratio of 14.74, a maximum drawdown of 26.73 per cent and an annualised volatility of 14.16 per cent.
The fund adopts a ‘growth at a reasonable price strategy’ which focuses predominantly on large-caps. Its largest individual holdings include the likes of German pharmaceutical company Bayer AG, US biotech firm Thermo Fisher Scientific and multinational conglomerate Honeywell International.
Over 10 years, the fund has outperformed its average peer and benchmark by 83.24 and 39.86 percentage points respectively with a total return of 184.02 per cent.
In fifth place with an average annualised return of 12.16 per cent is BNY Mellon Long Term Global Equity. It also has a maximum drawdown of 18.08 per cent, an annualised volatility of 12.48 per cent and a downside risk ratio of 12.7 compared to the index’s downside risk of 15.8.
The £1.1bn fund is run by a team headed up by Walter Scott. Its portfolio is constructed adopting a bottom-up stock selection process, which focuses on world-class businesses offering high and sustainable wealth generation.
The team aims to generate between 7 and 10 per cent real returns per annum and looks to hold companies for at least five years. Examples of its largest holdings include pan-Asian life insurance firm AIA Group, Adobe Systems and Taiwan Semiconductor Manufacturing Company.
In total return terms, it has outperformed its average peer and benchmark by 74.94 and 25.25 percentage points with a total return of 175.72 per cent.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Only two more funds remain on the list: Invesco Perpetual Global Ex UK Enhanced Index and Schroder MM International.
The former – which is managed by Alexander Uhlmann, Michael Fraikin and the Invesco Quantitative Strategies team – aims to outperform the MSCI World ex UK index over a full market cycle and tends to have a high correlation to the index.
Stocks are chosen using a systematic and quant-based process which focuses on earnings expectations, market sentiment, management and quality & value.
It has an average annual return of 10.92 per cent over 10 years and has a 10-year maximum drawdown of 28.48 per cent, an annualised volatility of 14.26 per cent and a downside risk ratio of 15.51.
The latter, which is a fund-of-funds, is headed up by Marcus Brookes, Robin McDonald and Joe Le Jehan. Its 10 largest holdings currently account for 90 per cent of the overall fund, with Findlay Park American, GAM Global Diversified and Man GLG Japan Core Alpha accounting for some of its largest constituents.
Over the last decade, it has achieved an average annual return of 10.4 per cent and has an annualised volatility of 12.78, a downside risk ratio of 13.17 and a maximum drawdown of 27.46 per cent.