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It’s a small world

Global portfolios have undergone something of a renaissance of late. Five years ago, there were some 118 portfolios in the Investment Management Association’s global growth sector while today there are around 162 with a three-month track record.

Its popularity has to a degree been driven by the move towards multi-manager, with several funds of funds available within this sector, but investors have also been seeking opportunities further from home.

According to the IMA’s monthly statistics, global growth funds were among the top five in terms of gross retail and institutional sales over every month this year to end of July.

Considering the size of this sector, it is hardly surprising to see where it is placed in terms of sales. However, breaking it down further can be a bit more telling.

The IMA’s July sales statistics show that the global growth sector was the second most popular sector in terms of gross retail purchases direct from the public and via direct salesforces.

For the intermediary channel, however, global growth funds rank lower at 10th.

It could be said that the rise in interest in global portfolios comes at a time when there has been significant news coverage of the emerging growth areas.

With demographics and the boom in commodities favouring areas such as Latin America and the Far East, it is easy to see why investors have become more interested in this story.

Look at the number of Brazil, Russia, India and China (Bric) funds or stand-alone China or India funds launched in the past year alone.

The problem with this argument when looking at global fund sectors is that it does not really ring true when you see where these portfolios invest.

It would probably be more apt to describe the global growth sector as Western growth, considering the high weightings that developed markets are given on average.

This is not surprising considering the bench-mark weightings of countries the size of the US, UK and Europe but it does mean it is becoming a little more difficult in this day and age to actually invest in a really global portfolio.

According to Lipper’s latest asset allocation analysis up to September 1, the average fund in its global growth universe had 17.1 per cent in the UK with a further 0.2 per cent in UK fixed interest.

Home bias aside, North America was by far the biggest exposure, with the average weighting at 32.4 per cent followed by Europe with 25.1per cent. Japan also features, albeit at a substantially lower average weighting of 8.6 per cent.

Once developed markets are totalled up, there is not a lot of allocation left for the emerging areas of the world, with the average Latin American weighting at 1.8 per cent, emerging markets 1.3 per cent and Pacific ex-Japan 8.6 per cent. Therefore, just over 10 per cent of global portfolios is invested in the story that many have been waxing lyrical about.

The figures are a snapshot of holdings data provided by fund companies on a survey basis and do not reflect all the funds within each sector as not all responded.

Still, the snapshot shows that by far the majority of funds within the so-called global sector are really more Western funds than worldwide, depending, of course, on what fund is selected.

As with most sectors, there is great variety of asset allocation mix, style and fund type within the 162-strong global growth peer group, from the £653m Swip international tracker to Credit Suisse’s constellation fund of fund and Gartmore’s global focus portfolio.

Like the types of vehicles on offer, the performance and holdings of these funds also vary considerably.

For example, the £150m Gartmore global focus portfolio, managed by Neil Rogan, has just under 8 per cent in the UK market with almost 40 per cent in the US, more than 25 per cent in Europe and 9.3per cent in Pacific and emerging markets, according to the fund’s latest factsheet.

It is ranked 105th over three months to September 10 based on a loss of 3.4 per cent, as shown by Morningstar figures.

This compares with the £265m Artemis global growth portfolio, ranked sixth over the same timeframe, where manager Peter Saacke has invested 4.8 per cent in the UK, 16.2 per cent in Asia and 2.8 per cent in Latin America.

Despite the greater emerging exposure, which includes 1 per cent in the Middle East and Africa, the fund also features high US and European weightings at 34 and 41per cent respectively.

On the other hand, the number one-ranked £347m Neptune global equity fund has a much higher weighting in emerging markets and lower exposure to the US over three months as well as three and five years.

As of August 31, fund manager Robin Geffen had 32.2 per cent allocated to emerging markets and a further 4.1 per cent to Pacific ex Japan markets although he also featured a high domestic weighting at 21 per cent and a big cash position at 11 per cent.

If investors truly want to gain more access to emerging markets, there is perhaps a better sector to gain that exposure – global emerging markets, which features just 31 portfolios. Its sales have been less popular than global growth of late.

Whatever the reasoning drawing investors to global sectors, be it to diversify holdings, gain emerging market exposure in a more diluted manner than investing directly or just to have the benefits of having a manager handle geographic portfolio allocation, there are no simple solutions.

One thing is clear. Whether developed or emerging, there do not appear to be many truly global options available.


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