Global label masks variety of funds
Although global GDP growth appears to be worsening – the IMF cut its forecast to 3.5 per cent in 2012 and 3.9 per cent in 2013 in its latest World Economic Outlook – retail investors have not yet turned their back on global equity funds and the IMA’s Global fund sector in particular.
It may not have been the best-selling sector in May – unsurprisingly, given the recent boom in fixed interest, that honour went to Sterling Corporate Bond. However, the sector saw net retail sales of £48.2m in May, beaten in the equity sectors only by UK Equity Income, Global Equity Income and Global Emerging Markets.
Overall, IMA Global is the sixth largest sector in the IMA list, with total funds under management of £49.4bn. But its performance is mixed. IMA figures show for the month to May 31, the sector recorded a loss of 4.7 per cent. While not the worst performer, it was certainly not the best. Overall, the Global sector recorded a loss over one and five years to May 31. Its positive 10-year return of 40.2 per cent nevertheless places it in the bottom third of the IMA sectors.
This performance may, however, be due in part to the wide variety of funds housed within the sector, which includes specialist thematic and socially responsible investment funds alongside traditional global equity vehicles. According to FE Analytics, the worst performing fund in the sector over one year to July 19 was a specialist thematic vehicle, the $1.3m (£0.83m) Guinness Alternative Energy fund, with a loss of 46.02 per cent.
Investing in energy seems to have contributed to the rest of the sector underperforming. The $109.9m Schroder ISF Global Small Cap Energy and the £648m First State Global Resources funds complete the bottom three of the sector, with losses of 34.02 per cent and 31.53 per cent respectively.
The Guinness Alternative Energy fund has a particularly niche portfolio with 41.6 per cent invested in wind, 34 per cent in solar, 15.5 per cent in energy efficiency and the remainder divided between hydroelectric and geothermal energy.
Currently, many of these alternative energy sources have yet to become cost efficient. However, the fund’s investment case is based on an assumption that as governments grow concerned about climate change and energy security, various incentive schemes will allow newer alternative energy technologies to become competitive on cost with conventional energy sources.
Meanwhile, the Schroder fund has 82.5 per cent in oil, gas and consumable fuels, while one of the largest sector weights for the First State fund is in energy at 28.7 per cent of the portfolio.
Energy funds have most likely been affected by the drop in oil and gas prices – including renewable energy funds, as green technology tends to become more attractive when oil and gas prices are high. Brent Crude oil is now priced at $106 a barrel, well below its peak of $144 in June 2008 and a recent high of $126 in March 2012, which set a record in sterling terms.