Only two funds in the IA Global sector have made top quartile returns while also experiencing low volatility and maximum drawdowns – the most an investor could lose if they bought and sold at the worst moments.
The global sector is notoriously difficult to outperform in, with less than half (46 per cent) of the sector beating the MSCI AC World index’s 105.10 per cent return over five years.
Indeed, only two funds sit in the top quartile of the IA Global sector across all three metrics, FE Trustnet can reveal.
Passive vehicle Vanguard FTSE Developed World ex UK Equity Index is the first, having returned 119.25 per cent over the last five years.
The £3.3bn fund has experienced volatility of 9.5 per cent and a maximum drawdown of 10.07 per cent.
The FTSE Developed ex UK index is made up of the shares of companies listed on stock exchanges around the world excluding the UK.
UK stocks make up around 10 per cent of the FTSE Developed World index and this fund may suffer if the UK market performs very strongly.
In its latest factsheet, Square Mile Research noted: “Given the exclusion of the UK, the fund is likely to be most suitable for investors who are getting their exposure to UK equity markets through other means.”
This allocation away from the UK has been beneficial for the index-tracking fund, with the FTSE All Share some 32.69 percentage points below the MSCI AC World.
Performance of fund vs benchmark over 5yrs
Source: FE Analytics
The fund, which has a tracking error of 0.06 to the FTSE Developed ex UK index, has a yield of 1.66 per cent and a clean ongoing charges figure (OCF) of 0.15 per cent.
The other fund in the top quartile for each of the three categories is Schroder ISF Global Smaller Companies run by Matthew Dobbs and Richard Sennitt.
The $300m fund invests in companies which at the time of purchase are considered to be in the bottom 30 per cent by market capitalisation of the equities market in the relevant jurisdiction.
It is benchmarked against the S&P Developed SmallCap index and has returned 128.05 per cent over the last five years with volatility of 9.61 per cent and a maximum drawdown of 8.8 per cent.
The fund has an OCF of 1.34 per cent.
However, it has not beaten the MSCI AC World in all three categories - falling short on volatility – with only six funds, including the aforementioned Vanguard FTSE Developed World ex UK Equity Index, having beaten the index in all three categories.
Performance of indices over 5yrs
Source: FE Analytics
Indeed, while it has been difficult for funds to beat the index with less than half outperforming, just 35 per cent of the sector’s funds have experienced lower volatility than the benchmark, which has a figure of 10.95 per cent.
And only 13 per cent of funds have been less volatile than the index’s 9.53 per cent figure, showing how difficult it has been for global funds to beat the benchmark on these three metrics.
The largest fund to achieve the feat is HL Multi Manager Special Situations run by Lee Gardhouse and Roger Clark.
The £1.5bn fund invests in other funds with Findlay Park American, Stewart Investors Asia Pacific Leader and FP CRUX European Special Situations as its top three holdings.
“We continue to aim to identify and invest with a selection of exceptional fund managers we believe can add value for investors over the long term,” the managers wrote in their latest factsheet.
“Over shorter periods we hope to add value by rotating profits from areas with strong performance and add to those with short-term weakness.”
Top performing funds with volatility and maximum drawdown over 5yrs
Source: FE Analytics
The fund is overweight UK stocks (43.8 per cent) with 16.4 per cent held in Europe and 13.1 per cent in Asia. Its largest underweight is the US where it is 11.6 per cent exposed.
It has returned 106.63 per cent placing it in the second quarter of the IA Global sector but is in the top quartile for volatility (9.03 per cent) and maximum drawdown (8.87 per cent).
The fund has a yield of 0.53 per cent and an OCF of 1.49 per cent.
The best active performer of the eligible funds is the £71m Artemis Global Select run by Alex Illingworth, Simon Edelsten and Rosanna Burcheri.
It has returned 111.79 per cent (though this again places it in the second quartile), with volatility of 9.41 per cent and a maximum drawdown of 8.55 per cent (both top quartile figures).
This is not a “typical global equity strategy” according to Square Mile, as it is aimed at quality businesses that are supported by established growth trend.
This leads the portfolio to invest in companies that are less exposed to the “vagaries of the prevailing economic climate”.
The research house said: “This is a dynamic process, with new themes continually being explored, tested and occasionally included in the portfolio and ones considered to have played out being reduced and dropped.
“There is a well-defined investment philosophy backing this fund and it could be a suitable vehicle for those seeking a more thematic approach, investing in growing industries and one that will hopefully provide an element of protection when the market wobbles.”
Currently, the fund is focused on companies that are producing strong growth in cashflows, with luxury goods conglomerate LVMH, Time Warner and Microsoft the top three holdings in the portfolio. Artemis Global Select has an OCF of 0.93 per cent.
The other funds to achieve the feat of beating the MSCI AC World on a total return, volatility and maximum drawdown basis over the last five years are CF Canlife Global Equity, MI Metropolis Value and Vanguard SRI Global Stock.