FE's head of research (pictured) says picking only one fund in a sector leaves investors exposed to the success or failure of one strategy, and that prudent diversification can reduce this risk.Here FE Trustnet looks at some funds that are highly rated by the FE Research team and have different and complementary strategies to profiting from global growth.
M&G Global Basics
FE Alpha Manager Graham French has managed this five crown-rated fund since it was re-launched in 2000.
Since then M&G Global Basics has outperformed its sector and the MSCI World index in every year they rose bar one, but underperformed in every year they fell.
This stems from French’s strategy of picking companies that benefit from long-term growth trends, meaning he has a bias to sectors such as consumer cyclicals, which tend to fall hardest during tough periods.
The fund’s strategy also makes it sensitive to commodity prices.
The portfolio is the second-best performer out of 112 in the IMA Global sector with a 10-year track record, having returned 313.87 per cent over this time.
However, this outperformance came in the first five years of that decade, illustrating the fund’s sensitivity to global growth.
Performance of fund vs sector and index April 2003 to 2008
Source: FE Analytics
Between April 2003 and April 2008 it returned 245.21 per cent while the MSCI World index made 75.31 per cent.
However, over the last five years the fund has made just 20.31 per cent while the index has made 38.42 per cent, according to data from FE Analytics.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
French’s portfolio also has a higher weighting to mid caps than to large caps, which gives it the potential for higher growth but with greater volatility.
The fund requires a minimum initial investment of £500 and has ongoing charges of 1.67 per cent.
Ecclesiastical Amity International
FE Alpha Manager Robin Hepworth’s £224m Ecclesiastical Amity International fund is also a top-quartile performer over 10 years, although it has a very different approach to French’s.
The fund tends to be more defensively positioned and invests in areas of the market with slower and steadier growth.
The defensive approach is enhanced by the existence of the ethical screens that ensure the manager cannot pick stocks that have a negative impact on the environment.
This means that it generally avoids miners, which is one of the sectors with the highest growth potential but also the highest volatility.
The sector has also performed poorly in recent years, dragging down the funds that have invested in it.
The result is a portfolio that has a much lower volatility than the M&G fund and a lower maximum drawdown.
However, its returns of 227.55 per cent over 10 years means it has underperformed French’s fund.
Performance of funds vs sector and index over 10yrs
Source: FE Analytics
Ecclesiastical Amity International is available with a minimum initial investment of £200 and has ongoing charges of 1.58 per cent.
JM Finn Global Opportunities
This £87.2m fund has five FE Crowns and is managed by FE Alpha Manager Anthony Eaton.
Unlike many funds in the IMA Global sector it has a high weighting to emerging markets, focusing on companies in the infrastructure and basic materials sectors or that benefit from increased trade in those regions.
The fund is highly volatile, more so than the MSCI World index, and lost 54.98 per cent in the 2008 crash as investors rushed out of riskier stocks.
Performance has improved in recent years but it may be when the emerging markets start to outperform again that the fund comes into its own.
Eaton is particularly interested in the potential in Africa, which is an area not covered by many funds.
The fund has returned 161.75 per cent over 10 years compared with 98.2 per cent from the MSCI World benchmark.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund requires a minimum initial investment of £1,000 and has ongoing charges of 1.83 per cent.
First State Global Listed Infrastructure
This fund focuses exclusively on infrastructure, but does so with a more defensive approach.
In the 2008 crash the fund’s volatility was around half as bad as that of its benchmark and it also managed to make money in 2011 when equity markets fell.
Despite its defensive focus it has been a top-quartile performer since launch, returning 40.94 per cent over the past five years.
According to the FE Research team the fund is likely to capture about 70 per cent of the upside to an equity rally, but it will underperform the top-performing funds in those circumstances.
The fund also has a high weighting to northern European countries, and is given an extra cushion by the yield it provides, which is currently 2.87 per cent.
It is available with a minimum initial investment of £1,000 and has ongoing charges of 1.62 per cent.
In the previous article in the series, FE Trustnet looked at how investors can properly diversify their UK small cap exposure.