Global equities give active managers a broad, deep pool of stocks in which to manoeuvre, and consequently you would think they could showcase their abilities reasonably well. Sadly, most have not done so.
As of May 31, 90 per cent of the Morningstar Global Large-Cap Blend peer group lagged the MSCI World index over 10 years, 92 per cent across five years and 89 per cent over three years.
The category includes funds from across Europe and gives us a large number of offerings to compare.
But as cross-border funds, in particular, tend to be costlier than UK-domiciled products, it’s worth seeing how vehicles based in the UK have fared. The short answer is better, but only just, with the average fund underperforming the benchmark by 86, 88 and 84 per cent across three, five and 10 years, respectively.
The conclusion is that in the past decade the vast majority of investors in the Global Large-Cap Blend group have paid substantial active management fees for the pain of losing to an unmanaged index.
There are some mitigating factors. Over the past 10 years, US stocks have surged ahead while European concerns have flagged. The gap has inflated dramatically since the 2011 stockmarket crash.
Since then, the MSCI US index has risen 84 per cent in US dollar terms, compared with 22 per cent for the MSCI World ex US index and 27 per cent for the MSCI Europe benchmark. That relative appreciation has caused the US to loom large in the MSCI World index – it now makes up nearly 60 per cent.
For the most part, managers have declined to ramp up their exposures to the same extent, and instead they have overweighted Europe.
So what are investors to do? Morningstar has three gold-rated funds in the Global Large-Cap Blend sector. One of them is the passive Vanguard FTSE Developed World ex UK fund. This vehicle offers broad exposure to global markets and is cheap, with an annual ongoing charges figure of just 0.15 per cent.
For those in search of active ideas, Morningstar analysts have awarded a gold rating to just two actively managed vehicles in the category; one has a 10-year record – the Veritas Global Focus fund.
This offering is run, to good effect, by managers Charles Richardson and Andrew Headley, with a benchmark-agnostic approach focused on companies with durable competitive advantages and strong cashflows. Its US dollar shares have exceeded the MSCI World index by 3.2 percentage points a year over the past 10 years.
The other is the Dodge & Cox Worldwide Global Stock fund, a newer offering that is based on a pair of successful US and ex-US strategies the firm has run for decades in that country. It seeks value when buying shares and is patently unafraid to go into beaten-down names.