Global  

Can global funds stave off problems to sustain growth?

  • Grasp the factors affecting global equity fund performance
  • Understand the political impact
  • Learn more about where global equity fund managers are investing
CPD
Approx.30min

Global equity funds have been largely unfazed by ongoing political uncertainty over the past 12 months, with a number of stockmarkets shrugging off the unstable backdrop and continuing to post healthy returns.

As a result, it primarily invests in consumer staples (31.7 per cent), healthcare (29.1 per cent) and technology (23.7 per cent). 

With the US its largest regional allocation, the fund also invests in the UK and continental European nations like Spain, Denmark, Finland, France and Switzerland.

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Reversal of fortunes

As shown in Table 1, the average performance over the 12 months to 31 May across the IA sector was 29.6 per cent. But two trusts head the pack: Lindsell Train IT and Scottish Mortgage. 

Scottish Mortgage, like fellow frontrunner Fundsmith Equity, is a good example of a global fund that tends to focus closely on one particular sector. In this case, it is technology. The trust – now listed in the FTSE 100 as a result of its strong performance – counts the likes of Amazon, Tesla, Facebook, Alphabet (Google) and China’s Baidu among its top-10 holdings. 

The returns produced by these US giants, in particular, have helped drive returns higher over the past half-decade. The best open-ended fund in Table 1, Morgan Stanley Global Opportunity, has a similar emphasis on US technology stocks.

But the best-performing global portfolio of all over the period is the Lindsell Train investment trust. This is another example of an idiosyncratic offering, and one that is quite different from the conventional Lindsell Train Global Equity fund that also features in Table 1. 

The trust’s returns are in part due to its sizeable stake in Lindsell Train itself. As its discrete performance in 2015/16 shows, this means the trust often performs in a markedly different way to its peers. But it also means the company is not suitable for most retail investors. Manager Nick Train has gone so far as to warn investors away from the trust in recent years, suggesting its current valuation is not sustainable.

For most other funds, 2015/16 proved to be a much harder period for global investment. China’s ‘Black Monday’ in August 2015 precipitated a sell-off in global equities that proved difficult to escape, as indicated by the -3.2 per cent average loss for funds in the sector. But three quarters of Table 1 managed to outperform on the downside during this period, indicating their resilience – or perhaps underlining just how different many of them are from the typical global portfolio.

For further evidence of this, consider Old Mutual Global Equity. The fund is distinct from all others in the table by virtue of the fact it is run using a quantitative process. This means manager Ian Heslop and team take small positions in some 500 different shares in a bid to produce returns. 

So far it has worked: the fund has an annual growth rate of 9.8 per cent over the past decade. It favours the US and Europe in particular, but also has an 8 per cent exposure to Japan.