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Plus ca change…again

Back from my enforced summer holidays – did you miss me? I missed you – and we begin the new term pretty much as we finished the last one. Investors are still excited about risk assets one week, then scampering back to the so-called safe havens the next, Peter Hargreaves is still not terrifically keen on RDR and England have still not won a football World Cup since 1966.

Admittedly, we have had the publishing sensation of 2010 – the book everyone has been breathlessly anticipating since the idea was first floated a year or two back. No, not Blair’s – I mean my co-authored Investing in Emerging Markets – The Bric Economies and Beyond although I suppose it is not good form to be plugging it in only the second paragraph of my first column back.

Instead, let us focus on the wonderful world of investment’s newfound love for global equity income funds, which has been troubling me for some months now – predominantly because I find the arguments advanced in their favour all very plausible.

Needless to say, the mere possibility that fund providers might actually be fulfilling a genuine investment need is making me question my whole world view. My only comfort is that the law of averages says they had to get one right sooner or later and it can only be a matter of time before normal service is resumed.

The ascent of the global equity income fund is part of another confusing phenomenon – the resurgence in the popularity of global equity investing. I am sure it was only 10 years ago the dear old global growth sector was seen – with apologies to Graham French and a few other honourable exceptions – as something of a sleepy backwater for funds and fund managers.

Another honourable exception was and is, of course, Invesco Perpetual global smaller companies, run for a decade and a half by Kathryn Langridge and more recently by Lord Yerbury of Henley. So it was doubly serendipitous that I recently had the chance to interview Nick Hamilton, the group’s head of global equity products. Maybe he could set me straight on what has changed.

“I don’t know if I can be sage enough to pin down what has led people to look overseas,” he begins before being sage enough to do just that.

“Some of the shine has come off the UK economy after a very strong period of growth while obviously the world is changing and those changes are occurring a very long way away from the UK.

“Many UK companies will benefit but they will do so from afar and maybe only a certain percentage of their business. When there are periods of great industrialisation or demand for capital, like now, it will attract capital. Fund flow data continues to support that view as developed market equity exposure is in significant net redemption and emerging market fund flows are going the other way. So there has definitely been a change in people’s sentiment towards investing globally.”

Furthermore, it is hard to escape the cyclical nature of investment. Hamilton says: “We had a long period of sterling strength, which was obviously bad if you were investing outside the UK, and then two years ago that changed. Now the currency has moved in favour of investing overseas, which points people in that direction.

“We have also done a lot of work on risk and volatility in global investing and while it would be incorrect to suggest there are great diversification benefits from investing between developed markets because correlation there tends to be very high, there are diversification benefits from investing between developed and emerging markets. That obviously has an impact on the overall risk profile of investors’ assets, which is clearly suppor-tive of a global approach.

“So there are a number of factors – and then, frankly, it just makes sense. When we go shopping nowadays, we are more than happy to buy products from all corners of the world and, from an investment perspective, while retail investors have tended to be a bit more parochial, that is inevitably changing now.”

Julian Marr is editorial director of and www.thought


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