Global equity strategies often find it difficult to outperform given the large weighting to the super-efficient US market.
As such, there are few funds from both main global equity sectors – IA Global and IA Global Equity Income – that have been able to beat the broader index year-in, year-out.
In only one of the past five years has the average IA Global fund outperformed the MSCI AC World index, which captures 85 per cent of the investable global equity universe - including emerging markets, unlike its developed markets-focused MSCI World sister benchmark.
In 2017, the average IA Global fund outperformed with a 14.02 per cent return against a rise of 13.24 per cent for the MSCI AC World, as the below chart shows.
Performance of sectors vs index over the past 5yrs
Source: FE Analytics
However, just three active funds have outperformed the index in each of the past three calendar years, FE Trustnet research has found.
Below we take a closer look at the very different strategies that have come out on top when their peers have struggled. Of course, it must be remembered that past performance is not a guide to future returns.
JGF-Jupiter Global Value
The first fund on our list is the five FE Crown-rated JGF-Jupiter Global Value fund, managed by veteran investor Ben Whitmore and Dermot Murphy since late 2016.
As the name suggests, the $394.4m fund is a value strategy and was formerly known as JGF-Jupiter Global Equities. It has a concentrated portfolio of around 36 holdings and invests in companies Whitmore and Murphy consider undervalued.
The pair assess the quality of potential holdings in terms of the strength of market position in comparison to competitors, any recent or potential changes in their industry, and ability to turn profits into cash and dividends.
Whitmore and Murphy are sceptical of forecasts, which they consider “inherently unpredictable”, instead performing their own analysis using historic data and making use of screens to identify certain characteristics.
The fund made a 2.86 per cent loss last year – the first under the managers – but this was against a 3.79 per cent fall for the MSCI AC World and it has outperformed the index in each of the past three years.
While the market became more nervous about a potential recession last year, the managers remain confident that the fund will hold up well regardless.
“It is widely believed that value shares, which tend to be more cyclical, will perform badly if we do have a recession,” they noted. “It is true that value shares performed dreadfully in the 2008/9 recession, but they held up exceptionally well in the 2001/2 recession.
“The key difference, we believe, was the valuation gap between value and growth heading into the recession. The gap was very narrow in 2007 but was very wide in 2000.
“Today the gap is as wide as it was in 2000 and so we feel a portfolio of lowly valued shares with strong balance sheets will perform at least as well as a portfolio of less cyclical, but much more expensive, quality/growth shares, even if we do have a recession.”
Under managers Whitmore and Murphy, JGF-Jupiter Global Value – which is benchmarked against the MSCI AC World index – has delivered a total return of 21.5 per cent against a return of 16.3 per cent for the benchmark and 15.07 per cent for the average peer.
The fund has an ongoing charges figure (OCF) of 0.91 per cent.
Sanlam Global High Quality
Next on our list is another five FE Crown-rated strategy – the £370.5m Sanlam Global High Quality fund, managed by Pieter Fourie and William Ball.
Another value fund, the Sanlam offering has a bias to high-quality growth stocks investing in companies with predictable revenue growth and offering high returns on capital, low leverage, and a sustainable competitive advantage.
The managers run a concentrated, benchmark-agnostic portfolio of 25 to 35 stocks and limit exposure to emerging markets at a maximum of 30 per cent. The fund can also hold up to 22 per cent of net assets in cash should the managers feel it is appropriate; this figure currently stands at around 15 per cent.
Sanlam Global High Quality lost 2.93 per cent last year, but was up by 17.51 per cent in 2018 and by 28.73 per cent in 2016, and outperformed the index in 2015 as well.
Performance of fund vs sector & benchmark 2016-2018
Source: FE Analytics
Between 2016 and 2018 Sanlam Global High Quality made a total return of 46.83 per cent, while the MSCI World index – its benchmark – was up by 39.02 per cent and the average IA Global peer returned 32.59 per cent.
While global equities finished on a disappointing note last year, the managers believe there are still opportunities to be found in markets.
“The aggregate market valuation does mask a significant valuation spread between in-favour growth companies or those with limited economical sensitivity compared with businesses deemed either to have significant economic sensitivity or facing some form of business challenge,” the firm noted recently.
The fund has an OCF of 0.6 per cent.
Stewart Investors Worldwide Equity
The final fund on our list is the five FE Crown-rated Stewart Investors Worldwide Equity fund, lead-managed by Dominic St George, with support from Alex Summers and Jon Asante.
The £34.5m strategy has a long-term approach to management, investing in a concentrated portfolio of equities across a range of industries.
Unlike the benchmark, the portfolio currently has a low exposure to US stocks, which represent 16.6 per cent of the portfolio, compared with a 54.4 per cent weighting in the fund’s MSCI AC World benchmark.
It also has significant exposure to German and UK stocks, as well as overweights in India, Switzerland, Taiwan, Singapore and South Africa.
The managers currently prefer consumer staples stocks, which make up more than a third of holdings (34.5 per cent), followed by financials (16.8 per cent).
Like the Sanlam fund, cash is also a significant position in the portfolio, accounting for a weighting of 17.7 per cent.
Over the three years between 2016 and 2018, the fund made a total return of 42.49 per cent, as the below chart shows.
Performance of fund vs sector & benchmark 2016-2018
Source: FE Analytics
“As ever we continue to seek out co-owners of businesses whose time horizons extend to decades – drawing lessons from the past as much as trying to foresee the future – and thus seek to make business decisions in preparation for all weather, rather than the current benign conditions,” said St George recently.
The fund has an OCF of 1.26 per cent.