InvestmentsMar 29 2012

A global hunt for growth

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ByMelanie Tringham

Global funds have a tricky objective to pull off. They have to find some way of allocating their assets according to a certain formula, but with competing trends for their attention.

For example, if they were to follow the MSCI World Index very closely, then that would mean that about half the funds would be invested in North America, which some might feel uncomfortable with. In addition, deciding that emerging markets are the way forward might not be all that reasonable either, given the restrictions and potential pitfalls of direct investment.

Either way, their performance has not been exactly stellar in recent months. For the year to 19 March 2012, the mean global fund produced an average return of 10.38 per cent, against the MSCI World Index of 10.19 per cent. The FTSE All Share returned 9.25 per cent.

Ruli Viljoen, head of investment research of Morningstar/OBSR, said: “Last year the average global equity fund struggled to outperform the MSCI Global Index. The reason for that was because the US did really well and emerging markets was where most fund managers are overweight.

“For those managers that are underweight in the US, that had an impact. Most of them, most of the time are going to be underweight the US. That’s because the US is such a large allocation in the MSCI.

“Most managers are saying ‘I’m running a diversified portfolio, are half of my best ideas going to come from the US? Is that a well-balanced, diversified portfolio?’”

The problem is that the US is doing quite well at present. The S&P 500 has been climbing steadily in the past few months, so that it is now hitting 2008 levels. It is currently sitting at around 1400, a rise of 200 points from 2009, and its increase is starting to outpace that of the FTSE 100.

And more recently employment data has suggested that the economy is turning a corner. In February, the US added 227,000 jobs to the economy, following on from the 243,000 created in January.

This has been matched by strong figures on the unemployed. In the week to 10 March, initial jobless figures fell 14,000 to 351,000, and the numbers have been on a downward trend since October last year.

Richard Peirson, fund manager of Axa Framlington Managed Balanced fund, is optimistic about US-focused stocks. He said: “Although we’re not very overweight in the US, in the UK portfolio we have a reasonable bias towards companies with US earnings.