Picking a global fund can be overwhelming, but new analysis from Trustnet highlights how there has been a clear winning style over the past decade.
In its latest series, Trustnet looks at market capitalisation, investment style and active vs passive funds to find out which has been the best way to play each major market. Having previously looked at the domestic UK market, where smaller companies funds dominated, next we turn our attention to those that invest globally.
The global market has been dominated by the large-cap US technology names over the past decade, with the likes of Amazon, Google parent Alphabet and Tesla among those that have propelled markets higher.
It is of little surprise therefore to see this play out in the data. The below chart breaks down the difference between value and growth stocks over 10 years across the large, mid and small areas of the market.
Performance of indices over 10yrs
Source: FinXL
When it comes to larger companies, growth stocks have made more than double the returns of their value counterparts. In fact, this has been the best place to invest overall.
However, it is also of note that in both the small- and mid-cap range of the market, growth has also been the clear winner.
This is perhaps the biggest factor that global investors need to take into account, unlike the UK market where size mattered. Indeed, over 10 years smaller companies have once again proven to be the better way to invest, but only marginally.
As the below chart shows, the all-cap MSCI AC World index has made 258.2% over the past decade, while the MSCI ACWI Small Cap index is only 8.6 percentage points ahead, a difference of less than 1% a year.
Performance of indices over 10yrs
Source: FE Analytics
With this in mind we turned to the active or passive side. Active smaller companies trusts have been poor over the past decade, while there is no equivalent Investment Association (IA) fund sector.
Indeed, the IT Global Smaller Companies sector has made just 134.3% for investors over the past decade, less than half that of the index.
Meanwhile, when looking at broader global funds, both the IT Global and IA Global sectors have lagged the MSCI ACWI index, as the below chart shows.
Performance of indices over 10yrs
Source: FE Analytics
This is a reflection of the domination of large-cap growth stocks, which active managers have typically been underweight on, whether through style choice or to differentiate themselves from the benchmark.
For investors that choose to go down the passive route, and the data implies they should, there are a number of options available.
The cheapest on the market is the L&G Global Equity UCITS ETF, which charges just 0.11% for a fund that tracks the Solactive Core Developed Markets Large & Mid Cap USD Index.
However, for those that want a fund with a more recognisable index, the Vanguard FTSE Developed World UCITS ETF and Fidelity Index World track the FTSE Developed index and MSCI ACWI respectively. They both charge 0.12%.
In the small-cap space, the Vanguard Global Small-Cap index charges 0.31% while the iShares MSCI World Small Cap UCITS ETF costs 0.35%. Both track the MSCI World Small Caps index.
That is not to say that active management does not have its place. Although the average active portfolio has failed to beat the benchmark index, some have achieved the feat by quite some margin.
Below are the top 10 funds and investment trusts over the past decade. Top of the pile is Scottish Mortgage - the world’s largest investment trust – which has leaned heavily into the growth and technology stocks that have won over the past decade.
Source: FE Analytics
Indeed, many of the funds on the list have higher-than-average exposure to the large US growth names.
It is joined by others from the Baillie Gifford stable, including the Global Discovery fund and its small-cap cousin the Edinburgh Worldwide investment trust, both of which invest with a similar mantra to Scottish Mortgage.
Lindsell Train IT is an anomaly, however, with manager Nick Train’s investment style less suited to these companies. Indeed, last week the firm bemoaned its lack of technology stocks in an update.
However, the trust has a large weighting to the underlying Lindsell Train asset management business, which has rocketed as the funds have grown in size and it has recouped more revenue in fees.