Morgan Stanley Global Brands, Pictet Security and Janus Henderson Global Equity have been among the best IA Global funds on a risk-adjusted basis, according to the latest study from FE Trustnet.
Using the commonly-used Sharpe ratio measure, in this series we break down the Investment Association (IA) sectors to find the best and worst funds for risk and reward.
So far, we have considered UK funds and in the below article we have put the spotlight on the IA Global sector – the largest in the IA universe by number of funds.
Please note, in the below chart we have removed four dedicated energy funds and one global materials portfolio with volatility of more than 20 per cent or returns of less than 55 per cent.
The other fund excluded from the below chart is the top-performing fund in the sector over the past decade: five FE Crown-rated Baillie Gifford Global Discovery.
Run by FE Alpha Manager Douglas Brodie since 2011, the fund changed its mandate from a European smaller companies strategy to one with a global remit.
As such, for the first three years of this study it looked very different, with higher allocations to Belgium and Finland and no weighting to the US – something that was changed when the mandate was altered.
Of those remaining, the fund with the highest returns is the five FE Crown-rated Morgan Stanley Global Brands fund run by FE Alpha Manager William Lock and a host of deputies, although it would have come out on top regardless on a risk-adjusted basis.
Table of top 15 funds with best Sharpe ratio over 10yrs
Source: FE Analytics
The £1.1bn portfolio has been the eighth-best performer in the sector over the last decade, returning 324.95 per cent, but has done so with the eighth-lowest volatility. As such, it has the highest Sharpe ratio of any fund in the IA Global sector of 1.03.
The fund looks for quality companies “built on dominant market positions, underpinned by powerful, hard to replicate intangible assets that can generate high, unlevered returns on operating capital and strong free cash flows”.
Second is the more specialist Pictet Security fund, which, as the name suggests, invests in companies that specialise in “safeguarding the integrity, health and freedom of individuals, companies and governments”.
The fund has returned 336.85 per cent – the fifth-highest in the sector – with low volatility of 12.41 per cent, giving it the second-best Sharpe ratio of 1.00.
Risk-adjusted performance of funds in IA Global sector over 10yrs
Source: FE Analytics
Top performer Janus Henderson Global Equity is next with a Sharpe ratio of 0.99 alongside Schroder Global Healthcare, which heads up three healthcare funds on the list.
The Janus Henderson fund is one of only three funds on the list to achieve a top Sharpe ratio despite higher volatility. Managed by Ian Warmerdam and Ronan Kelleher, it has returned 394.56 per cent with volatility of 13.97 per cent.
McInroy & Wood Smaller Companies and Merian Global Equity are the only other two funds to achieve this, with Sharpe ratios of 0.86 and 0.83 respectively.
The top performing fund in the sector not to make the list is the four FE Crown-rated Guinness Global Innovators headed up by Ian Mortimer and Matthew Page.
Launched in 2014, the strategy has been around since 2003, with the figures backdated based on the actual returns of a US mutual fund managed by the same team using the same investment process.
Over the past decade this has returned 347.38 per cent but has done so with high volatility of 15.7 per cent, leaving it outside the top 15 on a risk-adjusted basis (although still in the top quartile of the sector).
Conversely, Trojan Global Equity is the lowest performer to still make the list, returning 231.92 per cent – the 37th best in the sector (although still top quartile).
The £231m fund, headed up by Gabrielle Boyle since 2011 who took over from FE Alpha Managers Francis Brooke and Sebastian Lyon, has experienced the lowest volatility of its IA Global peers of 9.84 per cent, giving it a top 10 Sharpe ratio of 0.94.
Turning to the other end of the table, after excluding those with returns below 55 per cent, the fund with the lowest Sharpe ratio is Sanlam Global Best Ideas.
The portfolio uses a value approach to find undiscovered and neglected global equities with high growth potential.
Over the past 10 years it has retuned 105.53 per cent with volatility of 17.05 per cent, giving it a Sharpe ratio of 0.23.
Table of bottom 15 funds with best Sharpe ratio over 10yrs
Source: FE Analytics
The worst performer on the list, however, is Legg Mason ClearBridge Global Equity, which has returned 101 per cent over 10 years. Its volatility of 13.12 – in the second quartile of the sector – means that on a risk-adjusted basis it is not last. It has a Sharpe ratio of 0.28.
JGF Jupiter Global Ecology Growth is third with a Sharpe ratio of 0.26 having returned 103 per cent with volatility of 14.60 per cent.
M&G Global Themes also has a Sharpe ratio of 0.26 despite returned 108.42 per cent. It did so with slightly higher volatility of 15.89 per cent which drew it level with the previous fund.
The best performer of the group is the Fidelity Global Industrials, which has returned 153.61 per cent but still cracks the list having experienced volatility of 16.39 per cent. This gives it a Sharpe ratio of 0.38.
The most volatile fund (19.52 per cent) was SKAGEN KonTiki, which found itself as the second-worst for Sharpe ratio over the last decade (0.25) despite returning 121.94 per cent.