Global financial markets, although considered risky, are often the best places for higher returns when invested wisely. While performance is largely driven by market movements such as a central bank rate hike, or geopolitical events like elections, there is ample opportunity for investors to pick and choose the right regions.
Looking specifically at investment trusts, the Global sector offers diverse exposure to investors wishing to construct a balanced portfolio with countries that offer lucrative returns. While the trusts tend to be overweight equities, they can also select other asset classes such as cash or fixed income.
Global trusts can be more flexible compared with a single-country or a single-asset class fund since they are able to diversify opportunities and avoid risks. For example, a UK-focused fund will primarily have exposure to a single region and its markets and subsequently be more prone to bear the brunt of events impacting the UK stock market.
The majority of funds within the Global sector are benchmarked against the FTSE World or MSCI World indices. These funds are heavily exposed to North American equities, followed by the UK and Europe. Very few funds have exposure to emerging market countries due to the high chances of volatility.
The Association of Investment Companies (AIC) states that trusts within the Global sector are those with the objective to produce a total return to shareholders from capital growth and some dividend income.
Companies should also have less than 80 per cent of their assets in any one geographical area to be included within the sector.
The Global investment trust sector has seen positive returns on average. Table 1 shows the top 10 funds over five years based on an £1,000 initial investment, according to FE data. The average performance on a 10-year period for the whole sector was £2,043, and £1,466 over five years.
The best performing investment trust, according to the Table, is Lindsell Train, which returned £2,751 over five years. The trust, established in January 2001, invests globally with no limitation on the markets or sectors in which investments are made. The investment manager aims to allocate at least 80 per cent of investment to equities. It currently has close to 71 per cent invested in the UK, followed by 10.6 per cent in the US.
This is followed by the £3.1bn Scottish Mortgage Investment Trust, managed by Baillie Gifford, which returned £2,121 over five years. The company is the largest global generalist investment trust in the UK, having taken the title from Alliance Trust in 2014.
The trust aims to invest in technology – particularly companies that can ‘disrupt’ established industries and their ways of working. One example is Alibaba, a website that allows any business, regardless of their size, to find a supplier in China.
The company’s top 10 holdings include names such as Amazon, Facebook and Google. In terms of region, the fund is overweight North America with 46.8 per cent allocated to the region.
All funds listed in the Table have very high exposure to the US and the UK markets; four out of 10 have more than 70 per cent exposure to the UK. Standing out is Independent investment trust, also managed by Baillie Gifford, with 90 per cent allocation to the UK market.