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Dog days for global funds

Global fund managers have come under the spotlight for poor performance after the sector came last in the latest Bestinvest Spot the Dog survey.

According to the survey, the number of under-performing funds in the global sector more than doubled from 11 in 2010 to 27 this year, out of a total of 108 funds.

Bestinvest classifies a dog fund as one that has failed to beat its bench-mark in each of the last three years while under-performing the index by at least 10 per cent.

The worst-performing fund in the global sector is the £11.7m Allianz RCM global ecotrends, which saw returns take a 41 per cent hit over the three-year period to June 30.

It is followed by the £8.3m Aegon global equity, £65m Martin Currie global alpha, £241.7m Axa Framlington global opportunities, £44m Martin Currie global, £237m St James Place global, £127.9m Aviva Investors SF global growth, £41.6m F&C global growth, £10.9m Premier global alpha growth and the £363.2m Axa Rosenberg global fund.

Allianz RCM global eco-trends, managed by Vipin Ahuja, is also the worst performer on the dog list as a whole. Ahuja says the fund’s exposure to renewable energy is the main reason it underperformed.

Since taking over the fund in July 2010, he has cut exposure to renewable energy to less than 5 per cent and added 15 per cent emerging markets exposure. He says: “It is unfair that the fund is being compared with other global equities when it is a clean technology fund.”
JP Morgan portfolio manager in the global equity team Alex Robins says currency is a contributor to the £114.5m global equity income fund’s poor performance. The fund, which is 22nd in the global sector dog list, is down by 11 per cent in relative return terms over the three-year timeframe.

Robins says: “We hedge the currency in the fund back into sterling. When sterling is weak against the euro, as it has been for the last three years, we do not benefit from being unhedged as other global competitors do.”

Robins says stock selection in the fund has been strong and the effect of currency can be seen when comparing the fund to the MSCI world hedged to GBP index.

He says: “The MSCI world index hedged to sterling was down by 0.4 per cent annualised performance over three years to the end of June 2011. The fund was up by 6 per cent against the MSCI world index, which rose by 8 per cent.”

Robins says JP Morgan chose to hedge back into sterling to avoid exposing investors to the currency risk associated with investing globally.

He says: “We are launching an unhedged share class for the fund towards the end of this year or the beginning of next year. We have not seen the inflows we would like. We are still around £114.2m but think we can grow to £616m.”

Premier manager Mike Jennings also attributes denomination in sterling as one factor that has contributed to the underperformance of his £10.9m global alpha growth fund. The fund was down by 18 per cent over three years.

Jennings says: “From launch in May 2008 until about a year ago, between 55 and 60 per cent of the fund was denominated in sterling. We decided to hedge back into sterling, a mistake in hindsight because some retail clients were concerned about foreign currency volatility.

“Sterling collapsed in the fourth quarter of 2008 and it fell by 18 per cent against the dollar. This means if 50 per cent is denominated in sterling, I lost 9 per cent relative to my peers.”

Jennings says another contributor to the fund’s poor performance was a sharp rebound in March 2009, when the worst quality stocks outperformed and his high quality bias caused the fund to lag the bounce.

He says: “The FTSE 100 in the year to the end of June underperformed mid-caps in the UK by 6.3 per cent. My bias is to large caps. I have got a relatively low portfolio turnover and the high quality large caps are the kind of stocks that should substantially perform over the long term but have been underperformers over the last couple of years.”

Other global managers have been making stock changes in a bid to improve performance.

Martin Currie co-managers of the global alpha and global funds, James Fairweather and Neil Robson, have reduced their exposure to cyclicals and moved towards stocks with more durable growth.

The global alpha fund is down by 26 per cent while the global fund lost 21 per cent in relative returns over three years.

The Scottish Widows £1.7bn HIFML international growth fund is down by 10 per cent over the same period. It ranked 26th in the global sector dog list.

A Swip spokeswoman says as part of the fund’s transition from Insight, which completed in March 2010, manager Mike McNaught Davis has concentrated the underlying stocks.

She says: “Swip has actively addressed its performance and has now cut the number of stocks significantly from 135 to around 58. The results are already visible, with top-quartile performance over the first half of 2011.”

Skerritt Consultants head of investments Andrew Merricks says: “When considering global funds, I look for concentrated portfolios. It means if there is underperformance of a stock it might drag the fund down, but if you have a 5 per cent holding in a fund that is concentrated and the stock doubles, it will have more impact than if there is a 1 per cent holding.”


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