GlobalFeb 6 2017

Fund Review: Global funds grow more popular

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Fund Review: Global funds grow more popular
Monthly net retail flows into IA Global sector

In a volatile 12 months that have seen rising political populism, concerns over global growth, China’s slowdown and the UK’s exit from Europe, global equities have nonetheless proved popular for investors.

Figures from the Investment Association show net retail sales of the IA Global sector recorded just two periods of outflows, in January and June 2016, while from August to October there were consistent inflows of around the £400m mark. 

Sara Wilson, head of platform proposition at Alliance Trust Savings, says: “Immediately after the Brexit vote, we saw increased trading on the platform. Investors mainly saw the decision to leave the EU as a buying opportunity, reviewing their portfolios to ensure their investments are best placed to deal with market uncertainty. We’ve seen global funds increase in popularity as investors move away from UK-focused holdings.”

Meanwhile, the election of Donald Trump is also set to have an impact, with a recent BofA Merrill Lynch Global Research report noting an “impressive resilience of 2017 global earnings per share (EPS) forecasts this year as populism induces expectations of fiscal stimulus, trade protectionism, immigration controls, [and] industrial interventionism to solve inequality”. 

It states the consensus 2017 global EPS estimate is 13.1 per cent, and as of January 25, it has not been susceptible to the downgrades of recent years.

Ian Heslop, head of global equities at Old Mutual Global Investors, says Mr Trump’s win gave support to the bull market in US equities based on his tax stance and the anticipated effect of his planned massive spending on infrastructure. 

But he warns: “Market sentiment can turn. Mr Trump is unlikely to be successful in winning the support of Congress for all of his spending plans. Failure to deliver on his rhetoric could lead to market disappointment. Secondly, spending on this scale could be a double-edged sword, causing not only faster growth but also increased inflation.”

Mr Heslop continues: “Mr Trump’s protectionism could spark trade wars [and his] presidency could heighten political risk. Mr Trump’s unfiltered use of Twitter and his fluid approach to policy statements is risky.”

Given this potential wildcard, Rory McPherson, head of investment strategy at Psigma Investment Management, notes in a recent blog that while there is a case for “ditching safer assets in favour of cheaper, less-loved ones”, he suggests “the recent rotation clamour is over-done”. 

He explains: “The heroes of 2016 were the villains of the previous three years. Having lagged since 2011, emerging markets returned 33 per cent for sterling investors. Energy and materials won from a sector basis, having been the cheapest and most-hated at the start of the year. This shift in ownership is a function of the disconnect in prices between perceived ‘safe’ assets, which have been bid up to lofty valuations, and cheaper assets that have been neglected. 

“The growth dynamic has shifted and recessionary fears diminished. However, our near-term caution stems from the fullness of valuations and the burden of expectation pinned to this year’s equity earnings estimates. Analysts are calling for double-digit earnings growth this year. While we think positive earnings growth is on the cards, double-digit growth (in the face of wages at a [near eight-year] high) feels toppy.”