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The global equity funds making gains month-in, month-out

13 June 2018

In the first article of a new series, FE Trustnet looks at the funds in the IA Global sector that have made positive gains in the most months over the last decade.

By Jonathan Jones,

Senior reporter, FE Trustnet

Baillie Gifford Global Discovery, Morgan Stanley Global Brands and McInroy & Wood Smaller Companies have made positive returns in more than 70 per cent of months over the past decade, according to FE Trustnet.

The last decade has been one of great prosperity for investors, with extraordinarily low interest rates as well as supportive quantitative easing measures from central banks helping to prop up markets globally.

As such, the average fund in the IA Global sector has had a strong run, returning 111.56 per cent to investors to the end of May, while the MSCI AC World index is up by 140.80 per cent over the period.

Performance of sector vs benchmark over 10yrs


Source: FE Analytics

Over this period, the index has also been more consistent at generating returns, on average making a positive return in 77 of the last 120 months.

Meanwhile, only 36 of the 156 qualifying funds in the IA Global sector (or 23 per cent) have achieved a positive return in more months over the last decade.

One of two funds to have achieved the most positive monthly periods is the £525m Baillie Gifford Global Discovery fund run by FE Alpha Manager Douglas Brodie who took over from former manager David Walton.

Until Brodie took charge, the fund was run with a European remit, although this was widened out to a global smaller companies universe when he joined.

It has achieved a positive return in 85 of the last 120 months – or 71 per cent of the time – and is the top performer in the sector having returned 381.15 per cent.

However, it has been one of the more volatile strategies in the sector and has a maximum drawdown – the most an investor could have lost if buying and selling at the worst possible times within the same month – of 33.3 per cent.

Analysts at FE Invest said: “Although in isolation the fund is high risk, it could be well suited as an addition to an already diverse global equity allocation that is lacking smaller company exposure.”

The other fund with 85 positive months (and just 35 negative periods) is the £991m Morgan Stanley Global Brands fund.

Managed by FE Alpha Manager William Lock alongside a host of deputies, the team believes that high-quality companies can generate superior returns over the long term.

These companies such as Reckitt Benckiser, Unilever, British American Tobacco and Microsoft (the portfolio’s top four holdings) have been on an incredibly strong run since the global financial crisis of 2008.

Ultra-low interest rates have forced savers into low-risk investments, causing bond yields to collapse, in turn forcing these investors into riskier asset classes such as equities.

The defensive nature of consumer staples businesses among others, that provide a dependable level of growth and income, have been particularly sought after.

Morgan Stanley Global Brands has been the seventh-best performer in the IA Global sector but has also accrued its gains without the large drawdowns of the market. Indeed, its maximum drawdown is 12.17 per cent – the second-lowest in the sector.

The only other fund to achieve positive returns more than 70 per cent of the time is FE Alpha Manager Tim Wood’s McInroy & Wood Smaller Companies fund.

The £102m portfolio has returned 244.51 per cent over the last decade – a top 10 performance in the sector – although like the Baillie Gifford fund it has a higher-than-average maximum drawdown of 31.62 per cent.

It looks very different to the US-dominated MSCI World index, with 32 per cent held in UK stocks, 30 per cent in Europe and 29 per cent in the US with the remainder split between Australia and Japan.

Table of funds with highest % of positive months over 10yrs


Source: FE Analytics

Outside of these three funds, another 12 have managed to make a positive return in two-thirds of months over the last decade.

Most of these funds have made top quartile returns over the period but by no means all. Indeed, three have made below average returns, with Margetts Opes Growth a bottom-quartile performer.

The £15.8m fund, run by Wayne Buttery, makes up a wider multi-asset portfolio and aims to maximise returns while taking on a medium amount of risk.

The portfolio, which invests in a number of both passive and active funds, has had 80 positive months with 40 negative but has returned just 92.1 per cent. It has also one of the largest maximum drawdowns of 35.57 per cent.

At the other end of the spectrum, dedicated commodities funds have unsurprisingly struggled as metal and oil prices have been highly volatile over the last decade.

Schroder ISF Global Energy is the only fund that has failed to achieve more positive months than negative months.

Next up is First State Global Resources which made a positive return exactly half of the time, while Pictet Clean Energy is also in the bottom group.

Table of funds with lowest % of positive months over 10yrs


Source: FE Analytics

While most of the funds are in the bottom quartile for returns, there are some exceptions with Standard Life Investments Global Equity Unconstrained a notable one.

The fund is the only one among the bottom 20 funds for positive monthly periods to achieve a second quartile or better return.

The £198m portfolio has been managed by Mikhail Zverev since 2010, who took over from Lance Philips, and has returned 131.66 per cent over the last decade.

This is despite achieving a positive return in just 57 per cent of months (68 in total) and experiencing a large maximum drawdown of 41.23 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.