Global stock pickers, not sector-chasers

By Joss Murphy on 18 June 2025 in Equities, Global

It has become a cliché to say that global funds were either up to their eyeballs in US technology, or they were bottom of the league tables. The reality – particularly more recently – is more nuanced. The strongest performers in the IA global sector are an eclectic mix, with skilled stockpicking as their common theme, rather than an allocation to an individual region or sector. 

For example, at the top of the sector over five years is the Ranmore Global Equity fund, which is firmly in the value camp*. It has been only minimally exposed to the Magnificent 7 trade. It has Alphabet in its top 10, but holds just 17% in the US (versus 73% for the MSCI World)*. Instead, its top holdings are an unusual mix including Japanese TV network TV Asahi, Barbie maker Mattel, even the UK’s Tesco*. 

Its strength has not come from riding the AI trade up and down and up again, but rather from protecting capital during periods of market dislocation. Its strongest periods of outperformance have come at times of market weakness. In 2022, the fund rose 14.7% versus a sector average fall of 11.1%. It is showing a similar pattern for the year to date, up 14.2% versus -1.5% for the wider global sector**.

While there are some funds among the top performers that have been given a boost by the US technology sector, they are often index funds rather than active funds. It is also worth noting that the MSCI Global Value index has outpaced the broader MSCI since the start of the year***. Even though it is behind over five years, it is not by much, with an annualised return of 13.6% compared to 14.7%***. Ultimately, from here it seems unlikely that active global funds will win by hanging on the coattails of a single sector or country. 

Some global funds are still backing US technology, though selectively. Growth rates look likely to slow. Neil Robson, manager on the CT Global Extended Alpha fund, takes a balanced view: “Today it seems that virtually everyone has a smart phone, and the movement of advertising on-line has already substantially occurred. The growth rates of these businesses going forward will be more pedestrian than they have been in the past twenty years, but the cash generation and capital allocation possibilities remain robust. 

“They remain powerful quality franchises. Apple will likely generate over $100bn of free cash flow this year. However, cloud computing is a fast-growing oligopoly and AI is nascent. As a group they are unlikely to match the growth rates or the duration of growth they have historically but they are still set to be very competitive.” He owns Microsoft, Nvidia, Alphabet, Amazon and Meta*. 

Sean Peche, manager on the Ranmore Global Equity fund, is more sceptical, believing the tariff situation in the US is likely to create huge earnings uncertainty for many US companies. He believes MAGA may in fact become MIGA (make ‘international’ great again), “because the shift from U.S. fighter jets to Typhoons benefits European companies. Consumers shunning Teslas in Europe and China benefits EU and Chinese EV makers. The move away from iPhones in China benefits Chinese and Korean phone manufacturers. Retaliatory tariffs on US grain exports benefit Brazilian exporters and the Canadian “staycation” will benefit Canadian hotels and resorts. Because despite the MAGA rhetoric, America has had it very good for a long time. That’s why their companies are “priced for perfection””.

Zehrid Osmani, manager on the Franklin Global Trust, still has AI as one of three seismic shifts that it favours in its portfolio. The other two are the energy transition and the ageing population. However, its artificial intelligence exposure is broader than just the US mega-caps. He says: “Within artificial intelligence, there are four themes that we favour. Metaverse and quantum computing is one (nascent but fast growing); robotics and automation, which AI will accelerate; cloud infrastructure, which is something that hyperscalers are busy upgrading to harness AI; and, related to that, cybersecurity.”

The fund holds companies such as NVIDIA and Microsoft, but has recently been adding to its China exposure through companies such as Tencent and Alibaba: “China is showing an ability to continue to innovate in a post-Deepseek world and has levers to pull through internal fiscal and monetary policy measures to navigate the increased macroeconomic uncertainty.”

There is also the question of whether there will be opportunities at the other end of the scale. At the bottom of the global sector performance table are areas such as healthcare, smaller companies or sustainability. Healthcare stocks have been held back because of uncertainty in the US and the ‘RFK Junior’ effect on drug pricing, smaller companies have been held back by rising interest rates, while sustainability stocks have been dented by the well-publicised problems for the renewable energy sector, and the US administration’s disdain for diversity and new zero initiatives. 

All these factors could shift: healthcare companies are seeing real innovation, look cheap and may draw more investor attention if the global economy flatlines; smaller companies should benefit from their more domestic exposure at a time when global supply chains are disrupted, while sustainability stocks could benefit from the renewed commitment in the UK and Europe to spending on clean energy infrastructure. 

The experience of the past few years has taught us that global funds do not get ahead by backing a specific sector (even if that sector is US technology). Instead, they deliver investor returns by strong stockpicking through the cycle and thinking differently. The best funds do not slavishly follow the benchmark on regional or sector exposure, but are happy to stand apart from the crowd. We believe these funds will continue to be the winners in the global sector from here. 

*Source: fund factsheet, 31 May 2025

**Source: FE fundinfo, discrete calendar performance, YTD at 17 June 2025

***Source: index factsheet, 30 May 2025