Crossing national borders in the hunt for strong returns
Brexit and economic uncertainty are fuelling demand for global equity funds
The Global space is one of the broadest in the investment universe, covering exactly what it says on the tin. Many funds have specific focuses, but others cover the entire globe, looking for the best investments for their clients.
The most recent data available from the Investment Association shows the Global sector is the most popular, seeing net retail inflows of £690.5m in the month of March alone – the largest the space has seen on record. It was also the most popular with Isa investors, seeing £117m of net Isa sales on five selected platforms (Aegon, Fidelity, Hargreaves Lansdown, Old Mutual Wealth and Transact).
The sector, which consists of 321 funds from 137 providers, is the second largest by funds under management, with a total of £113.3bn of investor money. The UK All Companies sector is the largest, with £168.3bn FUM.
It is one of the few sectors that did not see any net outflows in the 12 months to March.
The IA points towards ongoing economic and Brexit uncertainty as the main reason it believes savers have turned to Global equity funds.
The sector is very broad in terms of the definition the IA gives funds. Its funds must invest at least 80 per cent of their assets globally in equities and be diversified by geographic region; if funds qualify for a UK, regional or Global Emerging Markets equity sector, they will be excluded from the Global sector.
Funds can elect to be classified within the Global sector on the basis of geographic diversification, even when a style or thematic bias exists.
This can be seen when looking at the sector constituents that focus on energy, smaller companies or ethical investment areas.
Looking over the past year specifically, funds that have performed particularly well have been those with an infrastructure focus.
The Legal & General Global Infrastructure Index fund was the top performer over one year, achieving returns of 23.4 per cent as of 28 May.
The fund tracks the performance of the FTSE Global Core Infrastructure index. However, from time to time, it can hold non-index constituents as a result of index changes or corporate actions, although these are sold or transferred as soon as it is practical for the managers.
At the other end of the performance scale over the year are energy funds. The Schroder ISF Global Energy, MFS Meridian Global Energy and Guinness Global Energy funds sit at the bottom of the performance table. This comes after energy giants including Royal Dutch Shell and BP (in which many energy funds invest) had turbulent years.
Over a longer timeframe, energy funds still sit at the bottom of the sector, while generic global equity funds have shot to the top.
The top performer over three years is Lindsell Train Global Equity, which saw a 98.99 per cent return on investment. The £7.9bn fund, managed by Michael Lindsell, Nick Train and James Bullock, has a strong bias to North American (33.8 per cent) and UK (29.5 per cent) equities, predominantly in consumer products (48.7 per cent). See overleaf for more on the top performing funds over five years, of which Lindsell Train Global Equity is the second best.
The second half of this year poses many issues from a macroeconomic viewpoint.
With ongoing Brexit uncertainty, the start of a US presidential race and a slowing economy in China all issues that fund managers may be looking ahead to, the next 12 months will certainly be interesting for the Global space.
Funds in focus: The world at their feet
Investors in the Global sector are treated to a broad range of investments, with many crossovers in holdings and similar strategies. Here is a detailed look at the six top-performing funds over five years, and how they invest.
Morgan Stanley Global Opportunity
- Performance over five years: 188.53 per cent
- Fund size: $7.6bn (£6bn)
- Manager: Kristian Heugh
- Benchmark: MSCI All Country World Index
- Launched: October 2012
- About: The top-performing fund over five years, this has many household names in its top 10 holdings, including Amazon, Mastercard, Visa, Alphabet (Google) and Facebook. However, it also holds many less-known stocks, such as TAL Education Group, a Chinese education and technology enterprise; DSV, a Danish transport and logistics group; and ServiceNow, an American cloud computing company. The fund seeks long-term capital appreciation by investing globally in high-quality established and emerging companies. The manager looks for long-term growth, rather than focusing on short-term events.
Lindsell Train Global Equity
- Performance over five years: 170.42 per cent
- Fund size: £7.9bn
- Managers: Michael Lindsell, Nick Train and James Bullock
- Benchmark: MSCI World Index (Developed Markets)
- Launched: March 2011
- About: One of the most well-known funds in the UK investment universe, this vehicle has gone from strength to strength, and has become gradually larger over the years. Despite the team doing little to no marketing or press, the fund remains popular with advisers and clients alike. It has grown from £1.5bn in June 2016 to £7.9bn at the time of writing. Another very long-term focused fund, the managers seek to invest primarily in companies listed or traded on recognised exchanges in developed companies. It has a low turnover and is highly concentrated, consisting of between 20 and 30 stocks at any given time.
- Performance over five years: 162.49 per cent
- Fund size: £17bn
- Manager: Terry Smith
- Benchmark: MSCI World
- Launched: November 2010
- About: One of the most talked-about funds in recent times, Terry Smith has grown this vehicle by more than 180 per cent in two years. It is clear by looking at performance why the fund has been so popular with investors. In terms of strategy, Smith is a long-term investor who does not adopt any short-term trading approaches. Fundsmith operates stringent investment criteria across its funds, including looking for companies whose advantages are difficult to replicate, are resilient to change, and have attractive valuation levels.
Baillie Gifford Global Discovery
- Performance over five years: 132.81 per cent
- Fund size: £772.5m
- Manager: Douglas Brodie
- Benchmark: S&P Global Small Cap index
- Launched: May 2011
- About: Another attractive investment comes from Baillie Gifford, which looks to focus on the long term by investing globally in transferable securities of companies that it considers to offer “excellent future growth prospects”. The fund has a large proportion in healthcare, technology and consumer products. Its top holdings include online supermarket Ocado, American online lending marketplace LendingTree and Alnylam Pharmaceuticals, a biopharma company which focuses on the development of treatment for genetically defined diseases, based in Massachusetts.
Seilern Stryx World Growth
- Performance over five years: 129.86 per cent
- Fund size: £769.9m
- Managers: Corentin Massin and Michael Faherty
- Benchmark: MSCI World
- Launched: January 2008
- About: Boutique manager Seilern has just five funds, so remains relatively unknown in the industry. However, with a top performer like the Stryx World Growth fund, it is worth keeping a close eye on how the group continues to grow. This fund aims to achieve absolute returns with a moderate risk by investing in OECD-country companies of a high quality. The managers put together a detailed analysis of each company before investing. The top 10 holdings include plenty of well-known names, such as Mastercard, Alphabet, Estee Lauder and Nike.
T Rowe Price Global Focused Growth Equity
- Performance over five years: 126.53 per cent
- Fund size: $1.61bn (£1.27bn)
- Manager: David Eiswert
- Benchmark: MSCI All Country World Index
- Launched: January 2014
- About: This fund has had a massive boost in popularity from investors over the past 18 months, almost doubling in size. American giant T Rowe Price has been based in the UK for a while, first focusing on its institutional side, and now the intermediary profession is becoming a focus for the group, which seems to be working. The Global Focused Growth Equity fund has a strong North American focus, as is to be expected with a global fund, but also has a large focus on Europe, excluding the UK, and the Pacific Basin regions. Top holdings within this fund include Alphabet, Facebook and Amazon.