Fund briefing: Global sector
These products can provide a broad spread of international equities for a relatively small outlay.
There is also plenty of choice. At the last count, the sector contained around 280 funds, all of which must invest at least 80% of their assets in global equities and be geographically diversified. Many are also well established, with 130 boasting 10- year track records.
Their approach makes this sector of interest for a wide cross-section of people, from those taking their first tentative steps to seasoned investors, according to Darius McDermott, managing director of Chelsea Financial Services.
“We particularly consider the Global sector for people who are starting out in investing or who have smaller amounts of money because it enables them to be diversified,” he says. “The managers in this area tend to be looking for the best ideas around the world.”
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This is a key theme, according to Mark Dampier, head of research at Hargreaves Lansdown, who points out that the traditional way of creating a well-diversified approach by allocating a proportion of assets to key regions is largely irrelevant in today’s globalised world.
“Investing today is simply about finding great companies, regardless of where they happen to be based,” he says. “There are many successful businesses operating across the globe, generating revenue from Brazil to Beijing.”
It’s a point that appears to be acknowledged by the investing public. There is currently £77 billion invested in the Global sector, which accounts for around 8% of total assets under management in the UK, according to the Investment Association.
This makes it one of the most popular sectors in the UK. In fact, the only equity-focused sector that has received more money is UK All Companies, with its £163 billion or 17.1% share of the market – mainly because it largely invests in companies well known to investors.
Over the past three years, the average Global fund has returned 28.16%, similar to both UK All Companies and Europe excluding the UK. It’s also comfortably ahead of Asia Pacific excluding Japan, with its average 1.76% performance.
However, there are potential pitfalls with the sector.The sheer number of funds can be confusing for investors – especially as they have different aims, objectives and ways of operating, points out Patrick Connolly, a certified financial planner with Chase de Vere.
“Some funds are broad based and diversified, while others focus more on specific geographical regions,” he says. “You also have those taking a passive approach and others whose focus is on specific sectors such as energy, healthcare or infrastructure.”
While some have the whole world as their investment universe, others will only invest in developed, as opposed to emerging, markets. Investors, therefore, face the choice of buying one fund for broad exposure or a number of more specialist portfolios.
They also need to factor into their decision making the fact that some managers have more flexibility than others in terms of how many stocks they can hold or how much exposure they have to sectors, countries, or regions.
This helps explain the differences in performances achieved. While the best-performing names have delivered a return of almost 120% over the past five years, others have lost more than 60%, according to Morningstar data compiled to 14 December 2015.
A closer examination reveals the best names were invested in healthcare, which has performed well over the period, while those at the other end of the performance tables were more focused on areas such as natural resources, which have been under pressure.
Funds should therefore be judged on their individual merits to ensure they are right for your personal circumstances. Having a thorough understanding of a fund’s aims and objectives, as well as how it operates, will be extremely important.
Connolly believes an investor’s starting point must be to define exactly what they’re looking for when it comes to a global equity fund, as this will give them far more chance of finding the best solution for their needs in a sector with such a wide range of options.
This will also largely depend on how they will be used, he points out. For example, they may want to buy and hold funds that are suitable for long-term investments such as pensions, or as satellite holdings giving exposure to a particular area.
“Investors need to decide whether they want to invest in a diversified global equity fund or something more specialist,” he says. “There’s also the choice between active and passive funds, as well as whether they are interested in multi-manager or ethical approaches.”
Fund to watch: Rathbone Global Opportunities
James Thomson, who has had sole responsibility for the Rathbone Global Opportunities fund for the past decade, invests in under-the- radar and out-of-favour growth companies wherever he can find them in the world.
His fund, which aims to provide above-average, long-term capital growth from a global portfolio, contains the best 40 to 60 investment ideas, which are innovative, differentiated, less economically sensitive, as well as being scalable.
Although it adopts a growth- oriented investment style, the fund also has a defensive bucket of holdings that are less economically sensitive, with slower and steadier growth prospects, for risk management purposes.
The fund’s 10 largest holdings together make up just under a quarter of assets under its management.They include prominent names such as MasterCard, Facebook, Amazon.com, Visa and Rightmove, according to its most recent factsheet.
Mark Dampier, head of research at Hargreaves Lansdown, is a fan of this approach and has selected the fund for a position in his Wealth 150 list of leading portfolios, pointing out that stock selection has been a key driver of its performance.
“The fund invests in companies with high growth potential that other investors may have over- looked,” he says. “It is an approach that has worked well so far with James Thomson delivering strong outperformance over the course of his tenure.”
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An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).