12 bargain global funds
We all like getting good value for money. But this entails taking into account quality as well as cost.
It's the same when we choose an actively managed investment. It's not just a matter of picking the cheapest products. Performance also has to be taken into account. So when Money Observer selected the 21 actively managed funds and investment trusts we believe offer investors good value, we did not necessarily choose the cheapest products. We have selected those we believe will also deliver good returns.
For our UK picks and methodology, read: Nine bargain UK funds.
Invesco Asia Trust
Invesco Asia has an annual management charge of 0.75%. Extra expenses take the ongoing charge to a little more than 1%. The investment trust is managed by Stuart Parks and Ian Hargreaves. Both managers also run open-ended Asian investment funds.
The trust's strategy is to invest in companies likely to be the long-term beneficiaries of Asia's growing appetite for domestic consumer goods. Its top three exposures are to China, South Korea and Hong Kong, which jointly make up 62% of the portfolio. It can also invest in Australia.
First State Asia Pacific Leaders
This fund has a standard annual management charge of 1.5%. Its ongoing charge is only slightly higher, at 1.55%. It is one of the few remaining Asia Pacific funds with a long track record of good performance that is not "soft closed".
It is managed by the highly experienced Angus Tulloch and Alistair Thompson, who take a conservative approach. They invest in large and medium-sized companies, and their emphasis is on capital preservation. When deciding which companies to buy, they consider how well businesses are likely to perform in bad times as well as good to ensure any losses are minimised.
BlackRock Greater Europe Investment Trust
Most European investment trusts and some unit trusts have performance fees. One of the attractions of this trust is that its performance fee is capped.
Thus, while BlackRock receives an annual fee of 0.70% of market value plus a performance fee of 15% of any outperformance of the FTSE World Europe ex UK index, the maximum total management fee is 1.5% - although the ongoing charge may be slightly higher.
It is managed by Vincent Devlin and Sam Vecht, who can invest in a mixture of European companies of all sizes and some businesses in eastern Europe.
AXA Framlington European
AXA Framlington European has a standard 1.5% annual management charge and a relatively modest ongoing charge of 1.61%. It is managed by Mark Hargraves and has a strong performance record over all periods.
In-house research helps Hargraves spot growth themes, and he then looks for companies to exploit these themes. They must be high-quality, dynamic businesses generating a high return on invested capital. He endeavours to invest in the most attractive stage of a company's life cycle. He is a long-term investor with an average holding period of three to five years, which helps keep the portfolio's turnover low.
Law Debenture Corporation
This investment trust has an annual management charge of 0.3%. Even with additional expenses, its ongoing charge is less than 0.5%, making it one of the cheapest global growth trusts. It is unusual in that it is part of a group that provides independent fiduciary services to other companies.
The trust is particularly good as a first investment or as a one-stop-shop for UK investors, as around two-thirds of the portfolio is invested in the UK. Overseas holdings are used by its manager, James Henderson, to gain exposure to opportunities he cannot find in the UK.
Scottish Mortgage Investment Trust
Scottish Mortgage has a low annual management charge of 0.32% and an equally modest ongoing charge of 0.51%. The trust has a definite global slant and only a small exposure to the UK, currently of about 13%.
It is managed with an unconstrained approach, and it has around 70 holdings and a low turnover. The trust only invests in companies its managers think will do well - it does not simply follow an index.
The trust's long-serving manager, James Anderson, is about to take a six-month sabbatical, but we are confident his deputy, Tom Slater, will continue to manage the trust in a similar way to Anderson over this period.
Global emerging markets
Templeton Emerging Markets Investment Trust
This trust has a 1% annual management charge and ongoing charges of 1.31%. Unlike many of its counterparts, it does not charge a performance fee and - in contrast to many open-ended funds, which are facing capacity issues and have been turning investors away - it is still trading at a discount to its net asset value. Nevertheless, it has an excellent long-term performance record.
It is managed by a very experienced team led by Dr Mark Mobius, who is supported by many researchers around the world. It is well diversified and has very low portfolio turnover, which helps keep costs down.
Baillie Gifford Japan
This trust has a 1% annual management fee and an ongoing charge of 1.2%. It is not the cheapest in the sector, but it has the best long-term performance record and a very experienced fund manager in Sarah Whitely.
Whitely manages the investment trust with a bias towards medium and small companies, so she benefits from being able to take a long-term approach with her holdings. She can make use of gearing, which is currently at 14%. Whitely generally invests in companies she feels have good growth prospects over a three- to five-year period.
GAM North American Growth
GAM North American has a standard 1.5% annual management charge and an ongoing charge of just 1.57%. It has an impressive track record and is managed by Gordon Grender who has more than 40 years of investment experience. He invests in the US and Canada, where he seeks out value stocks overlooked by the wider investment community.
Grender holds companies he likes for the long term. He steers clear of firms he finds hard to value, so the fund has a relatively low technology sector weighting.
The North American Income Trust
This actively managed US equity income trust has an annual management charge of 0.8% and no performance fee. It is trading at a discount to its net asset value at the time of writing.
It can invest in companies of any size in the US and Canada, although it invests primarily in larger US companies. Up to 20% of the fund can be invested in bonds. It does not have a track record, but it is managed in Aberdeen's style by Paul Atkinson, so should deliver good results.
Global equity income
Newton Global Higher Income
There is little difference in the charges of most global equity income funds. This fund has a standard 1.5% charge, but its ongoing charge is modest, at 1.63%. It has a good pedigree. Newton has a sound record in the field of equity income investing. This fund was one of the first of its type to be launched.
It has been managed since inception by James Harries, who invests in shares yielding at least 25% more than the FTSE World index. This steers him towards out-of-favour stocks and companies that must also generate sustainable free cash flow.
Securities Trust of Scotland
This trust has an annual management fee of 0.6% and an ongoing charge of just 0.76%. It dropped its performance fee a year ago, shortly after it changed its mandate from a UK to a global growth and income trust. Its managers have stated their intention to keep the ongoing charge under 1%.
At the time of the change, Alan Porter took over as lead manager, and its performance has improved since. The trust now trades on a slight premium to net asset value, but this was not excessive at the time of writing.
This feature was originally published in our sister publication Money Observer
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.
Usually charged as a percentage of returns for performance above a specified benchmark, such as an index. The fee can range from 10% to 20% of total investment returns on a low starting benchmark such as Libor and investors could find themselves paying extra fees for merely average performance. Note that these funds do not compensate investors when the manager underperforms the benchmark.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Annual management charge
If you put money in an investment or pension fund, you’ll not only pay a fee when you initially invest (see Allocation Rate) but also a fee every year based on a percentage of the money the fund manages on your behalf. Known as the AMC, the actual percentage varies according to the particular fund, but the industry average for active managed funds is 1.5%.