How global is your global fund?

Whether it’s in the realms of politics, economics, sport or film, the United States of America dominates much of the world stage. And although it’s more than 4,000 miles away from the UK, it can also have an impact on our finances.

As we’ve discovered over the past few weeks, as US inflation has risen, stock markets and bond markets around the world have reacted. The US is also important for investors because it dominates the world indices – the benchmarks used to measure performance of global equity fund managers.

The MSCI World, which captures large and mid-cap representation across 23 developed markets has just shy of 67% allocated to the US*. 7% is in Japanese companies, 4.3% in the UK, 3.4% in France, 3.3% in Canada and 14.95% in the rest of the world*.

The MSCI ACWI index, which captures those same developed markets as well as 27 emerging markets still has 58.4% in the US*.

Global equity funds are popular at the moment. According to Goldman Sachs Asset Management, flows into these funds set a record high in the first quarter of this year, as vaccination progress, fiscal stimulus, and continued reopening of the economy buoyed investor optimism and enticed them into the asset class.

Source: ERPR Global and Goldman Sachs GIR. As of March 31, 2021.

Often a one-stop shop for investors who don’t want to have to worry about deciding geographical allocations in their portfolios themselves, should the bias to the US be of concern to investors or does it not matter?

Many truly active managers will not pay any attention to the benchmark and will simply invest where they find the best opportunities, regardless of where a company is listed. At times this could mean an even larger weighting to the US, or indeed being significantly overweight or underweight other countries. If the manager picks the right companies, the fund should do well regardless of what the wider stock markets are doing.

Looking at the global equity funds on FundCalibre, 15.6% are currently overweight the US **. 34.4% are significantly underweight – they have less than half the portfolio allocated to US companies**.

Randy Dishmon, manager of Invesco Global Focus, commented: “I don’t buy the market and I’m agnostic to geographical weightings. I look for a list of great ideas all around the world investing in businesses with deeply embedded advantages, operating in structurally expanding ecosystems. Things like e-commerce, cloud software, medical diagnostics and life sciences tools, digital payments…these are areas undergoing once-in-a-generation changes. Whilst the Invesco Global Focus fund has around 60% in US, this is because this is where I’m finding the most opportunities.”

In contrast, Simon Adler, co-manager of Schroder Global Recovery fund, says the team has just 13.8% invested in US equities right now. “We believe UK and European markets currently provide far greater compelling bottom-up valuation opportunities than the US,” he said. “The US underweight is a reflection of bottom-up stock selection, as we have found fewer ideas there as the market has become more expensive. This has not always been the case and when we do find ideas in the US, we take advantage of them.”

For investors currently wanting more geographical diversification in their global fund, five of the most diversified Elite Rated global equity offerings are:

Murray International

This investment trust can invest in equities and bonds. Its largest regional weighting is currently Asia Pacific ex Japan (28%) followed by North America (26%), Europe ex UK (14.4%), Latin America and emerging markets (12.7%), and the UK (7.3%)^.

Ninety One Global Environment

Investing exclusively in those companies contributing to the decarbonisation of the global economy, this fund has 35.9% in the US, 28.7% in Europe, 23.9% in emerging markets, 5.9% in the UK, 3.5% in the Far East ex Japan and 1.2% in Japan^.

Fidelity Global Dividend

The highest regional weighting for this income-producing fund is Europe ex UK (41.7%). It has 30.9% in the US, 13.2% in the UK, 6.6% in emerging markets, 4.5% in Japan and 1.1% in Asia Pacific ex Japan^.

BMO Global Smaller Companies

This 130-year-old smaller companies trust invests directly in businesses in the UK, North America and Europe. The team invests in other small-cap funds to gain exposure to Asian, Japanese and higher-risk emerging market companies. It currently has 40% in the US, 28.4% in the UK, 13.1% in continental Europe, 6.9% in Japan and 11.4% in the rest of the world^.

Schroder Global Recovery

This fund has the lowest weighting to US companies of all the Elite Rated offerings. With just 13.8% in US companies, the largest weighting is to the UK (23.2). It has 21.5% in Europe, 12.3% in Japan, 3.3% in Asia and 8.6% in emerging markets. The remaining 17% is in other individual countries and liquid assets^.

Elite Rated global equity funds with less than 50% invested in US companies

FundPercentage invested in US firms^
Schroder Global Recovery13.8%
Murray International26.0%
Fidelity Global Dividend30.9%
TB Evenlode Global Income34.3%
Ninety One Global Environment35.9%
BMO Global Smaller Companies40.0%
Brown Advisory Global Leaders40.1%
TM RWC Global Equity Income41.0%
JOHCM Global Opportunities41.3%
LF Montanaro Better World46.0%^^
ASI Global Smaller Companies46.8%
Lazard Global Equity Franchise47.4%

*Source: MSCI, fact sheets as at 30 April 2021
**Source: Fe fundinfo, as at 30 April 2021
^Source: fund factsheet, 30 April 2021
^^Source: fund factsheet, 31 March 2021

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Remember, all investments can fall in value as well as rise, so you could make a loss. Before you make any investment decision, make sure you’re comfortable and fully understand the risks.Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.