The IA Global sector is dominated by some of the biggest fund names such as the £26bn Fundsmith Equity and £16bn MS INVF Global Brands funds, but there are underappreciated gems that can be easy for smaller portfolios to be cast in their shadow.
When investing globally investors tend to stick to the funds they know, or have heard of. The latest trading data from interactive investor this week found that in January Fundsmith, Rathbones Global Opportunities and Baillie Gifford Positive Change – three already large funds – were the most bought of the month.
Likewise, the popularity of passive index tracking funds in the global markets can take focus away from some actively managed funds that deliver consistently high returns. The largest fund in the sector is the iShares Core MSCI World UCITS ETF, with £34bn in assets under management (AUM).
In this second part in Trusnet’s series on overlooked funds (following last week’s article on Asia), look at funds run by top-rated FE Alpha Managers that have made top-quartile returns over the past three and five years, but that have yet to attract more than £500m in AUM.
Legg Mason Martin Currie Global Long Term Unconstrained
Legg Mason Martin Currie Long Term Unconstrained is one that fits the bill. It has a large weighting to the technology sector, which makes up 32.7% of its holdings – a benefit over the past few years as these assets have soared.
The share price of its top position, artificial intelligence developer NVIDIA, has jumped 76.5% over the past year and is up almost 500% over the past five.
Its software has predominantly been used in the fast-growing videogame industry and, with the number of gamers globally expected to reach 4.5bn by 2030 according to data from Bank Syz, this looks set to continue for years to come.
Its technology is also quickly expanding into the region of driverless cars, which could offer the company huge scope if the concept becomes popular.
Ben Yearsley, director of Fairview Investing Limited, said: “What I like about the global fund, and why I think it will continue to perform over the long term, is that it’s a fairly simple approach. It’s a focused fund of 30 or so holdings of high-quality businesses that are held for the long term.”
This view was echoed by Rob Morgan, chief analyst at Charles Stanley, who said that the small volume of holdings meant that the FE fundinfo Alpha Manager, Zehrid Osamani has more freedom to select strong stocks that deviate from the global equities benchmark.
He said: “Osamni has established a solid team and process and had been building a decent track record, though it is likely overlooked by many in the competitive global equities sector.”
Total return of fund vs benchmark and sector over five years
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Source: FE Analytics
The fund is up 77% over the past five years but did not perform so well in 2021, down 4.3%. Despite falling below both the sector and IA Global benchmark recently, Yearsley said the portfolio’s solid top holdings should carry it through this weaker period.
He said: “Whilst this fund never reached the peaks of say Scottish Mortgage, it also hasn’t fallen as sharply either and has outperformed over the past year.
“As it’s full of quality growth companies a prolonged value market will hinder the fund, but for long-term holders this shouldn’t be an issue as the quality of these companies should shine through and earnings increases should ultimately drive share prices.”
Threadneedle Global Focus
The Threadneedle Global Focus fund has many of the big, market-dominating tech names within its portfolio such as Microsoft (8.3% of the portfolio) and Alphabet (6%) but its assets are not linked exclusively with the global index’s, giving it the freedom to invest in smaller cap companies with higher growth potential.
Tom Sparke, investment manager at GDIM, said: “We use the Threadneedle Global Focus fund in many of our portfolios as a core equity holding and it is an excellent fund for exposure to high-quality companies on a worldwide scale.
“The fund’s size we see as a big advantage over some of its larger peers as it can invest at all levels, wherever appropriate companies are in their journey.”
Threadneedle Global Focus is up 52.5% since its 2019 launch, outperforming the MSCI ACWI benchmark by 15.4 percentage points and providing top-quartile returns over the past three years. Yet it has just £207m in assets under management (AUM).
Total return of fund vs benchmark and sector since launch
Source: FE Analytics
Though it has joined the global benchmark and sector in a downward trend in the past three months, the fund is still up 10% over the past year.
Sparke said the fund owes much of its outstanding performance to Alpha Manager David Dudding, who “transported his success in the European equity space to a global remit”.
Threadneedle’s European Smaller Companies fund increased 429% in the decade Dudding spent as manager and he appears to have carried over this successful investment strategy when he started the Global Focus fund.
Fund vs Benchmark and Sector during Dudding’s management
Source: FE Analytics
Crucially, Sparke stated that risk within the Global Focus portfolio has remained relatively low. He said: “Volatility in the fund has also been lower than most, owing to high-quality assets, so its risk-adjusted numbers are also inevitable.”