How we allocate to… global equities
This article first appeared on Portfolio Adviser on 4th August 2022 The gospel of diversification is...
FundCalibre is an advocate for good active management: finding fund managers and funds that can consistently outperform their peer group and their benchmarks.
But outperforming year in, year out is very difficult and even the best investment professionals can have a bad year or two. During those times, it is important for investors to understand why a fund manager has not done as well and to decide for themselves if they think that manage can turn things around.
Here are three Elite Rated fund managers who have done exactly that.
Back in 2008 when the global financial crisis kicked-off in earnest, James Thomson, manager of Rathbone Global Opportunities, had a bad year. While global stock markets around the world tumbled 18%* and the UK stock market fell by 30%*, the fund lost just shy of 40%* of its value that calendar year.
It’s a time James still talks about today: a “humbling” experience that he never wants to repeat. As the world fell apart he had too many high-octane stocks in the portfolio and they got hit hard. But as a result, James took a long, hard look at his process and tweaked it, adding a ‘defensive bucket’ of stocks to the fund.
This technique has worked wonders, with the fund holding up much better than its peer group in the difficult years of 2015 and 2018. Indeed, the fund has outperformed the IA Global sector in nine out of the past ten calendar years** and anyone sticking with the fund would have seen their pot of money grow by 366%*** compared with 174%*** for the average global equity fund.
Stuart Rhodes, manager of M&G Global Dividend, had a bad time between 2014 and 2015, and took the unusual step of apologising, writing an open letter to investors. The fund returned 4%**** less than its peer group in 2014 and 9%***** less in 2015. The under-performance of the fund was due to a number of factors including the oil price and being underweight US equities.
The scale and the speed of the oil price decline caught Stuart by surprise and while his direct exposure to oil companies was not excessive, he also owned other energy-related stocks that fell along with this sector. The fund has always had a healthy allocation to the US but happened to be underweight the the country at a time when the stock market was strong.
In 2016 the fund bounced back, returning 40.75%^ compared with 23.33%^ for the average global fund. From its low at the end of 2015 to date, the funds has returned 64%^^ versus 45%^^.
This multi-cap income fund was positioned strongly towards UK domestic companies in the run up to the EU referendum in 2016. When the vote resulted in ‘Leave’, UK domestic companies were hit hardest as the pound fell against the US dollar and the euro.
As a result, the value of the fund fell by 4.1%,^^^ in 2016, while the sector peer group had a positive return of 8.8%^^^. As we now known, however, the UK economy has been reasonably healthy despite all the ongoing uncertainty and smaller and medium-sized domestic facing companies bounced back. The fund returned 17.96%^^^^ in 2017 compared with a sector average of 11.32%^^^^ in 2017.
The fund still has a decent amount of exposure to medium and smaller companies (more than half of the fund) and has returned 11.9%*^ compared with the sector average of 9.7%*^ in the intervening years.
*Source: FE Analytics total returns in sterling, for the fund, FTSE All Share and FTSE World, 1 January to 31 December 2008.
**Source: FE Analytics total returns in sterling, for the fund and IA Global sector calendar years 2009 up to and including 2018
***Source: FE Analytics total returns in sterling, for the fund and IA Global sector, 1 January 2009 to 21 March 2019
****Source: FE Analytics total returns in sterling, for the fund and IA Global sector, 1 January 2014 to 31 December 2014
*****Source: FE Analytics total returns in sterling, for the fund and IA Global sector, 1 January 2015 to 31 December 2015
^Source: FE Analytics total returns in sterling, for the fund and IA Global sector, 1 January 2016 to 31 December 2016
^^Source: FE Analytics total returns in sterling, for the fund and IA Global sector,31 December 2015 to 21 March 2019
^^^Source: FE Analytics total returns in sterling, for the fund and IA UK Equity Income sector, 1 January 2016 to 31 December 2016
^^^^Source: FE Analytics total returns in sterling, for the fund and IA UK Equity Income sector, 1 January 2017 to 31 December 2017
*^Source: FE Analytics total returns in sterling, for the fund and IA UK Equity Income sector, 31 December 2016 to 21 March 2019