Premier Global Alpha Growth, Henderson Global Growth and Fidelity Global Special Situations are among some of the highly-rated, top-performing global funds holding the smallest exposure to UK equities, according to data from FE Analytics.
While we have written about the global equity funds with the largest exposure to the UK in the past, opinions regarding the prospects for home market equities are indeed divided.
While star managers such as Neil Woodford are increasing their exposure to domestic-facing UK stocks, others are far more reticent.
In an article published last week, for instance, FE Alpha Manager Richard Hallett told FE Trustnet he has been decreasing his underlying UK revenue exposure over the last five years.
“Brexit has further cemented my belief that risks are higher in the UK,” he said. “It doesn’t necessarily mean I wholly believe the UK is going to struggle, but it could have problems going forwards with inflation rising, falling currency and the impact this will have on consumers.”
For like-minded investors who are cautious on the UK, it can also be difficult to find a global equity fund that caters to their needs.
For example, data from FE Analytics shows that 195 out of 258 (or 75.5 per cent) of global equity or global equity income funds are overweight UK equities relative to the MSCI AC World benchmark, which has a 6 per cent weighting to the region.
For those who are looking to diversify their regional allocation and dovetail their UK exposure with a global fund, or indeed avoid holding much in UK equities at all, we decided to look at the top-rated funds which are underweight the country.
To do this, we whittled down our list to funds which are in the top quartile over five years (and have had the same manager at the helm over this time frame), have been awarded four FE crowns or more and of course have less than 6 per cent in UK equities.
This left us with five funds, which are listed in the below table.
Source: FE Analytics
First up for its smallest allocation to UK equities is Invesco Perpetual Global Ex UK Enhanced Index which, given its name, will not come as a surprise to investors.
The four crown-rated fund, which has a 0.05 per cent UK equity exposure, has outperformed its average peer in the IA Global sector by 28.5 percentage points over five years with a total return of 112.9 per cent.
As to be expected, it has performed broadly in-line with its MSCI World ex UK benchmark; the fund’s performance is generated through a systematic investment process driven by earnings expectations, market sentiment, management & quality and value.
Managers Alexander Uhlmann and Michael Fraikin control risk through the use of an ‘optimiser’, a tool which recommends trades to maximise exposure to stocks with pre-determined risk/return targets.
Over five years, it is in the second quartile for its annualised volatility, maximum drawdown (which measures the most money lost if bought and sold at the worst times) and downside risk ratio (which predicts a fund’s susceptibility to lose money during falling markets).
The fund has a clean ongoing charges figure (OCF) of 0.37 per cent and yields 2.38 per cent.
Next on the list for its 3.3 per cent exposure to UK equities is Premier Global Alpha Growth, which has four FE Crowns and is headed up by Jake Robbins.
Over five years, the £106m fund has returned 111.94 per cent and, relative to its sector average, has done so with a top-quartile maximum drawdown but a third-quartile annualised volatility and bottom-quartile downside risk ratio.
Performance of fund vs sector over 5yrs
Source: FE Analytics
The manager can invest across the cap spectrum in both developed and emerging markets. Its largest regional exposure (which is nevertheless underweight relative to the MSCI AC World) is the US at 49.5 per cent, followed by continental Europe at 21.2 per cent and Japan at 11.6 per cent.
Its concentrated portfolio of 62 holdings is constructed with a strong focus on investment themes that look attractive over a 12-month period. Robbins also aims to maintain diversification in terms of both region and sector.
Premier Global Alpha Growth has a clean OCF of 0.98 per cent and yields 0.85 per cent.
The third fund on the list for its UK weighting of 4.8 per cent is Fidelity Global Special Situations, which has four FE crowns and is included on the FE Invest Approved list.
Headed up by FE Alpha manager Jeremy Podger, the £2.3bn fund has outperformed its average peer and MSCI AC World benchmark by 53.04 and 38.54 percentage points respectively with a total return of 137.44 per cent. In terms of risk metrics, it has done so with a second-quartile downside risk ratio, a third-quartile maximum drawdown and a third-quartile annualised volatility.
When selecting stocks, the manager draws from three ‘buckets’: companies undergoing changes which could positively impact their share price, companies with difficult-to-replicate products that can grow their earnings faster than their peers, and companies which have been significantly undervalued by markets. It should be noted that Podger can also short stocks.
This bottom-up selection process has led to a long regional weighting in the US of 49.6 per cent followed by continental Europe at 17 per cent and emerging markets at 11.3 per cent. Its largest individual long positions are Alphabet, Royal Dutch Shell, Citigroup and Apple.
Fidelity Global Special Situations has a clean OCF of 0.95 per cent.
Aside from F&C Institutional Global Equity, which is only available to institutional investors, the final fund to make it onto the list with a UK regional weighting of 5.6 per cent is the four crown-rated Henderson Global Growth fund.
Managed by Ian Warmerdam and Ronan Kelleher, it adopts a bottom-up stock selection process which focuses on companies where innovation drives competitive advantage and which have been under-appreciated by the broader market. Examples of its largest individual weightings include Apple, Amazon and ICON and, from a regional perspective, its largest respective exposures are North America, continental Europe and Asia.
Over five years, the £505m fund has returned 138.58 per cent compared to its average peer and benchmark’s respective returns of 84.4 and 98.9 per cent. It has done so with a top-quartile maximum drawdown, a third-quartile downside risk ratio and a bottom-quartile annualised volatility.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Henderson Global Growth, which has four FE crowns, has a clean OCF of 0.85 per cent.