Introduction
Nevertheless, the sector still found favour among UK investors, with net retail sales of funds that sit in the Investment Association Global sector peaking at £257m in April 2014. In February this year, global equity funds remained the best-selling of the geographic sectors, boasting net retail sales of £403m, with average net retail sales for the previous 12 months an impressive £301m.
The Global sector was the third best-selling sector in February, having recorded net retail sales of £197m, placing it behind Property and UK Equity Income respectively.
Daniel Godfrey, chief executive of the Investment Association, notes investors reduced their holdings of UK and North American equity funds in February in favour of global, European and Japanese funds.
According to FE Analytics, the MSCI World index gained 21.05 per cent in sterling terms in the 12 months to April 7, placing it behind Japan, North America and Asia ex Japan. The MSCI Japan index led the way, up 28.29 per cent and justifying the trend among investors to switch into Japanese equity funds. This was followed by the MSCI North America index, which saw gains of 26.43 per cent. MSCI AC Asia ex Japan was up 24.66 per cent, while Europe was up 9.39 per cent.
Keith Wade, chief economist at Schroders, points out that in spite of six years of “zero rates”, global growth remains “tepid”. He suggests the world economy is in “a period of balance sheet adjustment” as countries emerge at different rates from the banking crisis.
“The US and UK recapitalised their banks at an early stage of the financial crisis, but the eurozone has taken much longer. However, even here we are seeing signs of a return to lending following last year’s Asset Quality Review and stress tests. The danger is that the eurozone upswing has come too late to prevent a slide into deflation or that the legacy of the crisis means that banks and households have become reluctant to re-leverage,” he says.
“There are also concerns that China is the next shoe to drop in terms of the need to recapitalise its banking system.”
Stephanie Flanders, chief market strategist at JPMorgan Asset Management, observes the strengthening US dollar has been good for global growth. “A period of dollar strength could be helpful for the global economy if it slows the pace of rate rises in the US, while supporting faster growth in Europe and Japan,” she says. “But a further race to the bottom on currencies would be counterproductive for markets and global growth, as well as posing deeper problems for the Federal Reserve.”
The global economy had been poised for a US interest rate rise halfway through 2015, but many now believe that won’t happen until later this year. So, what can investors expect for the rest of 2015?
Ms Flanders says: “Though sentiment has shifted in the first part of the year, there continues to be a large degree of consensus in markets and the main developed world equity markets are more expensive than they were. On balance, a pro-risk stance still makes sense but investors should be diversifying more – and expecting less.”
THE PICKS
Witan Investment Trust
This £1.7bn investment trust invests in global equities using a multi-manager approach. The trust’s outperformance of the AIC IT Global sector has seen it make the Investment Adviser 100 Club 2014 for the second year running. Over 10 years to April 8, it generated a 197.16 per cent return, compared to the sector average of 135.01 per cent. The factsheet shows the portfolio has a 42.7 per cent allocation to the UK, while 21.3 per cent is in North America and 15.1 per cent is in Europe. Among the top 10 holdings are Pearson and Unilever.
Old Mutual Global Equity
Ian Heslop, Amadeo Alentorn and Mike Servent manage this £212.4m fund. Its objective is long-term capital growth through “active management of a diversified portfolio invested primarily in a broad range of global equities”. Most of the portfolio is invested in the US and Canada (59.9 per cent), followed by Europe ex UK (17.3 per cent). Apple, Intel and Gilead Sciences are the three largest holdings. Since its 1998 launch, the fund has performed well, delivering a return of 102.58 per cent in the five years to April 8. It is fourth in the Investment Association Global sector.
EDITOR’S PICK
JOHCM Global Select
This Investment Adviser 100 Club 2014 fund has clocked up one, three and five years of outperformance, placing it top quartile in the Investment Association Global sector. According to FE Analytics, it has returned 97.19 per cent to investors in the five years to April 8, compared to the sector average of 49.54 per cent. Notably, it is the fifth best performing in the sector over the past 12 months to April 8. Managers Christopher Lees and Nudgem Richyal have 52.24 per cent of the £1.9bn fund in North America and 18.83 per cent allocated to emerging Asia. The three largest holdings are Japan Exchange, Avago Technologies and NXP Semiconductors.
