Neptune Global Equity was among the best performers in the IA Global sector in 2017 but investors should remain cautious on the long-term prospects of the high conviction fund, according to industry commentators. 
Run by Robin Geffen (pictured), the £212.3m fund is a pure expression of Neptune Investment Management’s approach, taking a global view of stock selection and is a focused portfolio.
It is focused on sectors with the best opportunities for growth with Geffen selecting what he believes to be the best companies in those sectors, regardless of where they are based.
It has been a top quartile performer over the last year, returning 21.51 per cent following a strong 2017 in which the fund returned to form.
However, over the longer term the performance has been poor. It has generated a total return of 54.04 per cent to investors over the last decade – almost half the 104.38 per cent made by the average IA Global fund peer and around a third of the MSCI World benchmark’s 151.05 per cent, as the below chart shows.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Indeed, 2017 was the fund’s first foray in to the top quartile of the sector in a calendar year since 2010 and follows three years of bottom quartile performance.
Jason Hollands, managing director of business development and communications at Tilney Group, said: “The fund has had a strong year in large part because at the sector level it is heavily exposed to both technology stocks and geographically has a sizeable weighting to emerging markets, which also enjoyed a stellar 2017.
“This highly unconstrained approach and willingness to take big positions sets the fund apart from many in the sector and does mean the fund will go through periods of significant deviation from benchmark indices.”
Indeed, the fund is 34.7 per cent weighted to technology and 20.1 per cent invested in emerging markets with the likes of Amazon.com, Mandarin Oriental, Tencent, Alphabet and Microsoft representing its five largest positions.
On technology, Tony Lawrence, investment manager at Seven Investment Management (7IM) said: “Whilst we do our own asset allocation and so do not track global equity funds, Neptune Global Equity fund is for those who believe in the continued momentum of tech stocks.
“This fund has had an overweight position in technology, with Amazon, Facebook, Tencent and Alibaba all featuring in the top holdings, companies which led the market gains last year. Going forward, relative performance is likely to be defined by this overweight positioning.”
However, Architas investment director Adrian Lowcock said that the technology weighting could come under pressure this year after a strong 2017.
“Tech is the more challenging one because valuations are quite high in some parts of the tech sector but the growth is there and I think as long as we see the growth continue that will remain supportive of the tech boom,” he said.
“But we may see it broaden out a bit and that could have an impact on the fund’s performance because so far it has been all about the core large tech stocks in America and China.”
Additionally, he said the sector probably won’t see a repeat of last year’s performance, when the MSCI ACWI Information Technology index returned 29.5 per cent, as the below chart shows.
Performance of indices in 2017
Source: FE Analytics
“You rarely get such strong repeats. You may get one or two years of good performance but it is rare to get such strong performance on those core stocks,” Lowcock said.
Where the fund may continue to benefit is its chunky positioning in emerging market stocks, which Tilney’s Hollands said “could continue to play well in 2018”.
Lowcock agreed, noting that it is a longer-term theme that has the potential for more than one year’s worth of outperformance.
“Usually you get multi-year periods of strong performance in emerging markets and they can have five or 10 years out in the cold and then have five or 10 [years] back in the limelight and we are only really two years into that,” he said.
“That performance isn’t a straight line but I think emerging markets will continue to do well over the longer term and we could see some good performance in 2018 – so that theme should continue to benefit a lot of Geffen’s funds.”
Performance of indices in 2017
Source: FE Analytics
Overall, the Architas investment director said he would probably hold the fund if currently already invested but would be wary of investing in it for the first time.
“It is a high conviction fund and has got these big major themes. Investors need to be aware of that because these themes have their periods in the sun – as they had last year – and therefore will also have periods of weak performance – that is the nature of the beast.
“But if you think those trends are going to continue then the portfolio is positioned to do well and there is nothing to say that emerging markets can’t continue.”
Tilney’s Hollands said that while the themes could continue into next year, he would prefer to use separate funds for developed markets – such as Lindsell Train Global Equities – and emerging markets – Fidelity Emerging Markets, for example – so he can control the asset allocation.
Meanwhile, Laith Khalaf, senior analyst at Hargreaves Lansdown said the fund needs to continue its strong run before investors should look to allocate to it.
“This fund has posted disappointing performance for an extended period of time, and while a good year is of course encouraging, it is not long enough to conclude that a sustained turnaround is underway,” he said.
“To that end the fund needs to build on the last year and post several more years of good performance before it starts to be a contender for inclusion in investors’ portfolios.”
Neptune Global Equity has a yield of 0.49 per cent and a clean ongoing charges figure (OCF) of 0.87 per cent.