Which funds have returned over 10% this year?
Type ‘average return of the global stock market’ into Google, and you’ll see the results are pretty...
Just as many British people prefer to holiday abroad than in the UK, it now seems that they also prefer global equity funds over UK equity funds.
It used to be the case that UK investors felt more comfortable putting money into funds that were focussed on their ‘home market’ of the London Stock Exchange. But analysis of Investment Association data reveals the IA Global sector has £165.1bn of assets under management today – £3.3bn more than IA UK All Companies*.
Here we look at why investors are being increasingly drawn to having international exposure in their portfolios and highlight some global funds that are worth considering.
The most obvious benefit of going global with your investments is exposure to a broader universe of opportunities. Because managers of global funds can choose from companies based anywhere in the world.
The fact they’re required to be geographically diversified also means the risk being taken is spread across various regions and countries. If the FTSE 100 index falls significantly, for example, these managers may be less susceptible to losses than one who has a heavier weighting in large UK companies.
Of course, successful global funds require decent research teams to analyse the countries, markets, and potential holdings in sufficient depth.
Problems occur when several international markets are negatively affected at the same time, as we’ve seen with Covid-19 and Russia’s invasion of Ukraine.
The latter could have longer-term implications for trade relations and investment between nations, according to Keith Wade, chief economist and strategist at Schroders. He believes the reverberations point to a “new alignment of nations”, while tensions over the war are likely to result in a more fragmented or regionalised world economy.
“The war in Ukraine will intensify the focus on the risks of globalisation and raises geo-politics up the agenda for business and investors,” he said. “Trade and investment help bind countries together, but when they unravel the costs are significant.”
If you favour taking an international approach, then the good news is there are plenty of funds to choose from within the IA Global sector, many of which focus on individual companies and their specific futures as opposed to trying to second-guess how the politics will play out.
This fund, whose lead manager is Stephen Yiu, aims to buy and hold high quality businesses at attractive prices. A look at its most recent fund factsheet reveals its largest holdings include multinational giants such as Mastercard and Nintendo**.
The manager insists that it is “hard to imagine a world” in which the likes of Microsoft and Google don’t play a key role in our day-to-day lives. “Looking forward, we strongly believe the companies in which we are invested have the potential to deliver outperformance given at least a medium-term view,” he added.
This fund’s manager favours companies with the potential for improving economic returns in the future, but which can be bought at an attractive price. He said in March this year that he was managing the fading of two of the largest drivers of markets in recent years: COVID-19 and liquidity provided by central banks, saying that these trends are likely to drive a change in behaviour from both consumers and markets.
“We are investing in areas that are likely to benefit from rising rates, the reopening of economies, and countries where we believe a new economic cycle is just beginning, particularly in emerging markets,” he said.
The manager of Invesco Global Focus fund will typically hold a concentrated portfolio of 30 to 40 stocks and will favour companies with entrenched competitive advantages. As far as the geographical breakdown is concerned, 58.6% of the fund’s assets are in the United States, with China having the second largest allocation of 10.4%**.
Information technology is the most prominent industry sector currently with a 33.3% share of assets, followed by 28.2% in health care, and 19.6% in communication services**. Facebook is currently the largest individual holding, followed by Thermo Fisher Scientific, Mastercard, Alphabet, and Tencent**.
This fund’s structure provides manager Neil Robson with greater flexibility as he can buy stocks he expects to do well, as well as making money on those he believes will do badly, known as shorting. He told us more about the structure and how it works in this video interview.
This means all research carried out is useful – and can be acted upon in the portfolio – regardless of whether analysts have reached positive or negative conclusions. On a sector basis, information technology has the most prominent positioning on the ‘long’ side with a 36.2% weighting, followed by health care and communication services, each with just under 15%**.
This value-orientated fund is run by a four-strong team that looks for companies that have an edge in their respective business sectors. It can invest in any business around the world, but because the managers are looking for industry leaders, there is a natural bias towards larger-sized companies.
The make-up of the portfolio tends to be very different to its peers and, while the average fund in its sector has fallen more than 12% in value year-to-date, this fund is up almost 7%***. Top holdings include Tapestry, CVS Health, Ferrovial and Medtronic**.
The 10-strong team behind this fund looks for high quality companies with defendable and visible future earnings, allowing them to give attractive returns to shareholders and reinvest in their business to stay ahead.
The largest five positions currently include Microsoft, Philip Morris International, Reckitt Benckiser, Danaher Corp, and Visa, which together account for more than a third of the portfolio, such is the conviction of the managers**.
This is a high conviction fund that is completely unconstrained meaning managers, Ben Leyland and Robert Lancastle, have more freedom to find attractive opportunities. They look for ideas where the market is underestimating the value created by well-managed companies that reinvest wisely to create sustainable compounding returns.
In the most recent fund update, however, the managers acknowledged the issues faced in running a global fund in challenging conditions. “We don’t have all the answers ourselves, but we do have a strong set of core principles which underpin a proven investment process which has been battle tested in periods of much higher volatility than we have seen in recent years,” they wrote.
*Source: Investment Association, funds under management, May 2022
**Source: fund factsheet, 31 May 2022
***Source: FE fundinfo, total returns in sterling, 31 December 2021 to 12 July 2022