Global equity funds with specialist mandates such as energy, resources and premium brands have built up the most individual days at the very top of their sectors, FE Trustnet research shows, although they have spent a fair amount of time at the bottom of their peer groups as well.
In a previous article, we looked at the daily performance of funds in the IA UK All Companies and IA UK Equity Income sectors to see which had the most days in the top decile. Standard Life Investments UK Equity Unconstrained came out on top, followed by Standard Life Investments UK Equity Recovery and Orbis UK Equity.
Although investment decisions should not be based on funds’ daily movements, we’ve been asked to repeat this exercise for global equity portfolios so in this research we reviewed the IA Global and IA Global Equity Income sectors for their daily returns between 1 July 2008 and 30 Jun 2018.
Performance of fund vs sector and index between 1 Dec 2010 and 30 Jun 2018
Source: FE Analytics
After narrowing things down to all the funds with more than 1,000 days of track record, Morgan Stanley Global Opportunity came out on top. We have 1,758 days of performance data for the fund and it has been in IA Global sector’s top decile for 591 – or 33.6 per cent – of them.
Headed up by FE Alpha Manager Kristian Heugh, the $8.2bn fund looks for high-quality companies with “sustainable competitive advantages” that appear to be undervalued at the time of purchase. Top holdings at the moment include Amazon.com, Mastercard and Facebook.
While it has spent the biggest share of time in the sector’s first decile, it has also been in the bottom decile during 244 – or 13.9 per cent – of the days we examined, slightly more than would be expected by maths alone.
However, it is the more specialist funds in the IA Global and IA Global Equity Income sectors that appear to have the starkest polarisation between the top and bottom deciles.
The fund in second place is a good example of this. MFS Meridian Global Energy has spent 28.5 per cent of its 2,239 days of track record in the top decile but it would be a mistake to assume this means it has shot the lights out.
Our research shows that the fund has also spent 561 days in the peer group’s bottom decile – or 25.1 per cent of the days we examined. This translates to a 3 per cent loss since the fund’s launch in February 2011, putting the fund in the bottom decile for the whole period.
It’s a similar story with the other specialist energy funds on the list, given the challenging conditions to hit this part of the market in the past decade. Schroder ISF Global Energy, Guinness Global Energy and Pictet Clean Energy have all spent a high proportion of days in the top decile but also have a significant amount of time in the bottom decile; furthermore, they tend to be at the bottom of the peer group for their cumulative returns.
Source: Finxl
This isn’t the case with every specialist fund, however, with Morgan Stanley Global Quality and Pictet Security being examples of those avoiding spending too much time in the bottom decile.
Morgan Stanley Global Quality, which is run by FE Alpha Manager William Lock, has spent 27.3 per cent of its days in the IA Global sector’s top decile but just 10.9 per cent in the bottom. Thanks to the strong run in quality stocks during the post-crisis bull run, the fund is top-quartile since launch.
Likewise, Yves Kramer and Frederic Dupraz’s Pictet Security fund is first decile for the 10 years to the end of June 2018 after generating a cumulative total return of 310.15 per cent. The portfolio invests in companies that “contribute to safeguarding the integrity, health and freedom of individuals, companies and governments”, owing security services and physical security businesses as well as those in IT security.
Across both the IA Global and IA Global Equity Income sectors, there are 30 funds that have spent more than 10 per cent of their days in the top decile but fewer than 10 per cent in the bottom decile.
Quilter Investors stacks up well when the research is viewed like this as it has six funds on the list of 30. Quilter Investors Ethical Equity is the one with the highest share of top-decile days and it is joined by the likes of Quilter Investors Global Equity Growth and Quilter Investors Global Equity Value.
Neptune also performs strongly with two funds in the top five. Neptune Global Equity is run by Robin Geffen, founder and chief executive of Neptune Investment Management, while Storm Uru took over Neptune Global Income from Geffen at the end of 2017; both funds are towards the bottom of their sectors over the long run, but have had a strong past 12 months.
Source: Finxl
The research can also highlight funds that have spent little time in the top quartile but also little time in the bottom decile.
Threadneedle Global Equity Income, for example, has been in the IA Global Equity Income sector’s first decile for 1.5 per cent of the 3,055 days we examined. It has only spent 2.7 per cent of them in the tenth decile, which is one of the best records for the peer group.
Vanguard LifeStrategy 100% Equity, Scottish Widows Multi-Manager International Equity and BNY Mellon Long Term Global Equity are other examples of large global funds that have achieved similar results.