Corporate culture has spread throughout the developed world and into emerging markets in the last 30 years, meaning that the UK now makes up less than 10 per cent of the MSCI World index.
Investing in the domestic market, which is dominated by a handful of blue chip companies, is therefore a completely outdated way of investing – something Guinness’s Matthew Page spoke about in the context of equity income in a recent FE Trustnet interview.
Emerging markets and global fund launches in the UK have duly followed, with some groups opting to put their star UK managers in charge, hoping they will show the kind of form that made them household names in the first place.
Nick Kirrage and Kevin Murphy were the latest managers to make the move, with the launch of the Schroder Global Recovery fund.
With more and more investors buying into global funds, FE Trustnet decided to look at how the UK managers who made their name in the UK market have fared so far.
Harry Nimmo – Standard Life Global Smaller Companies
Standard Life’s Harry Nimmo is one of the most respected small cap managers in the UK, generating spectacular returns on the Standard Life UK Smaller Companies fund and Standard Life UK Smaller Companies trust since he took them over in 1997 and 2003, respectively.
FE data shows that both have comfortably beaten their respective sector averages over a 10-year period, thanks to Nimmo’s stringent bottom-up process of picking growth companies.
Performance of funds and sectors over 10yrs
Source: FE Analytics
Among his biggest success stories of recent years has been online retailer ASOS, which he first bought in 2006. It has returned an incredible 1,737 per cent over a five-year period.
In January 2012, Nimmo (pictured) took charge of the Standard Life Global Smaller Companies fund with co-manager Alan Rowsell, which has so far attracted assets of £135m.
Nimmo and Rowsell have made a very good start, returning 42.18 per cent so far. This puts it around 20 percentage points ahead of its IMA Global sector average, which is also its benchmark.
Performance of fund vs sector since launch
Source: FE Analytics
The fund has been slightly more volatile, however. Nimmo and Rowsell, whose speciality lies in US equities, are invested almost exclusively in developed markets. North America currently has a 45 per cent weighting in the fund, while the UK and continental Europe have 21 and 14 per cent, respectively.
Standard Life Global Smaller Companies requires a minimum investment of £500 and has ongoing charges of 1.84 per cent.
Alastair Mundy – Investec Global Special Situations
Alastair Mundy is another leader in his field, this time in contrarian investment. The manager targets companies that he believes are underestimated by the wider market.
He is best known for his Investec UK Special Sits fund and Temple Bar IT, which have benefited from his value bias. Our data shows that the manager has significantly beaten his peer group composite over the last decade, with returns of 113.8 per cent.
Performance of manager vs peers over 10yrs
Source: FE Analytics
Mundy has delivered this outperformance with less volatility than the sector. This is in part due to his active use of cash, which he builds up when he sees a lack of opportunities. Investec UK Special Sits has tended to outperform in falling markets as a result of this, but also rebounds strongly when Mundy puts his money to work in battered stocks.
Among Mundy’s largest overweight positions at the moment are Signet Jewelers, Grafton Group and Qinetiq Group.
The manager’s style has not worked as well in his latest venture – Investec Global Special Situations. Our data shows that the fund has returned 52.11 per cent since its launch in December 2007, putting it only slightly ahead of its IMA Global sector average and MSCI AC World benchmark. It is behind the index over three and five years.
The fund currently has a hefty cash weighting, at 12 per cent. UK is a significant underweight position at just 7 per cent, while the US and Europe make up the bulk of assets.
Investec Global Special Situations requires a minimum investment of £1,000 and has ongoing charges of 1.66 per cent.
Christopher Metcalfe – Newton Managed
FE Alpha Manager Christopher Metcalfe made his name running UK equity funds at Newton and Schroders, but has since taken charge of the Newton Managed portfolio, which invests across a number of developed regions.
It sits in the IMA Flexible Investment sector, but invests almost exclusively in equities. The UK remains a bias for Metcalfe, though he has significant exposure to the US and continental Europe.
He took over the £1.3bn portfolio in March 2011 and has so far been relatively successful, delivering 32.35 per cent compared with 26 per cent from his sector. However, Metcalfe’s overall record with the performance of Newton UK Equity and Schroder UK Equity included makes for much better reading.
Performance of manager vs peers since Oct 2003
Source: FE Analytics
The fund is highly rated by FE Research and is included in the FE Select 100. The team respects the fact that unlike many of his peers, Metcalfe looks beyond blue chip large caps and ventures into the FTSE 250.
"Income stocks have become enormously popular in this low interest-rate environment as investors find themselves concentrated in the same pool of large companies; as a result, Metcalfe has become concerned by high valuations and will not hesitate to look for medium-sized businesses," the team said.
"He remains driven by where value lies; he is not chasing income for the sake of it, as the fund aims to provide growth as well."
Newton Managed requires a minimum investment of £1,000 and has ongoing charges of 1.62 per cent. It is currently yielding 1.55 per cent.
So what’s the conclusion? Mark Dampier, head of research at Hargreaves Lansdown, thinks it is telling that some of the star UK managers have so far disappointed on the global stage.
"I don’t think you’d see Neil Woodford or Adrian Frost taking over global funds, because they know the UK so well – that’s the market they’ve always specialised in," he said.
"If you look at a quality manager like Alastair Mundy, he hasn’t done so well. I think you need to bear this in mind."
"Even if you look at Nimmo who has done well so far, he has managers who look after his US companies. It’s very hard for a manager to make this transition."
Dampier accepts the case for global funds has become more compelling in recent years because markets outside of the UK have become more established, and the number of products on offer has significantly increased.
However, he argues that the emphasis on regional diversification has perhaps been overplayed.
"You can argue until you're blue in the face about asset allocation, but in my experience I've found the best fund managers running UK funds often outperform even if other markets are doing better," he said.
FE Trustnet will publish a number of articles in the coming weeks examining whether asset allocation or manager performance is more important to long-term returns.
