Globalisation is key for First State fund
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First State Investments - Worldwide Equity Fund
Type: Oeic
Aim: Growth by investing globally in equities across developed and emerging markets
Minimum investment: Lump sum £1,000, euro 1,500 monthly £50
Investment split: 100% in global equities
Isa link: Yes
Charges: Initial 4%, annual 1.75%
Commission: Initial 3%, renewal 0.5%
Tel: 0800 587 4141
First State Investments’ worldwide equity fund aims for growth by investing globally in equities. The fund differs from the firm’s existing global growth fund in its exposure to emerging market equities, as well as investment in developed markets that are the focus of the existing fund.
The fund will focus on big western companies that are making money from growth in emerging markets, such as Unilever and GlaxoSmithKline, and will also draw on the firm’s specialist Asian and emerging market experience to include firms based in developing regions.
Putting the fund in to its market context, Hargreaves Lansdown fund analyst Richard Troue says: “Globalisation is not a new phenomenon, but it is increasing and it would be dangerous to ignore when thinking of how and where to invest. Much is being made of the opportunities for Western companies and brands in emerging markets. Likewise, companies in the emerging markets are finding opportunities for investment in the West. The benefit is often mutual.”
Troue adds that we have seen this in action recently when China’s premier, Wen Jiabao, signed a raft of trade deals with Britain and Germany on his five-day visit to Europe at the end of June. “Apart from being a good diversifier, a global fund could provide a
way for investors to capture this increasing trend of globalisation,” says Troue.
Looking in detail at First State’s product, Troue says: “With this fund First State is taking an approach that has worked well on other mandates such as its Asian, emerging market, Latin American and agri-business funds, among others. Stuart Paul, the manager, will essentially look for high quality companies with potential for strong growth, but he will only look to buy if the price is reasonable.”
Troue points out that key characteristics that Paul will look for include a formidable management team with a proven track record, a strong franchise or brand, high levels of cash generation and manageable debt. “These characteristics should not only foster strong growth but also resilience during harder times. The fund might lag in a strongly rising market but an element of downside protection could make up for this. This overriding philosophy has been tried and tested by First State and been successful in the past - it is one of the reasons I like First Sate as an investment house.”
Stuart Paul will run a concentrated portfolio with around 35 holdings. Troue says this is an approach he likes, albeit higher risk, as it means each stock can really have an impact on performance. “The fund has a significant position in companies providing staple goods to consumers. If you think that many consumer companies are set up to supply the one billion comparatively rich Western consumers, there is a huge opportunity across the board to begin supplying five billion or more in the emerging markets.”
Troue feels this is certainly a fund to tuck away for the long term, but given First State’s pedigree, he is positive on its long-term prospects.
Turning to the potential drawbacks of the fund Troue says: “Despite being positive on the concept and investment process, I have two
main concerns. First, and most significant, at 1.75 per cent I think the annual management charge is too high. I’d prefer to see charges in the region of 1.25 to 1.5 per cent for a fund such as this.
“Secondly, since joining First State I believe Stuart Paul’s responsibility has mainly been managing the business and oversight of the investment process. He therefore lacks a recent track record of managing money. However, given Jonathan Asante - manager of the successful First State global emerging market leaders fund - is co-managing the fund, the strength of the wider team and Stuart Paul’s knowledge of the investment process, this alone would not put me off buying the fund.”
Discussing the main competition, Troue says: “For something slightly more adventurous, investors might consider the JM Finn global opportunities Fund. Anthony Eaton, the manager, has recently trimmed commodity exposure in favour of global consumer brands benefiting from globalisation and increasing demand.
“I also like the Rathbone global opportunities fund, managed by James Thomson. He also has exposure to consumer goods companies through his ‘bargains and bling’ theme. As an example of this theme, he holds both Associated British Foods, owner of Primark, and LVMH Group, owner of Louis Vuitton.”
BROKER RATINGS
Suitability to market: Good
Investment strategy: Good
Charges: Poor
Adviser remuneration: Average
Overall 6/10
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