Fund briefing: Get diversified returns from global funds

17 June 2020

Diversifying your portfolio is always sensible, but never more so than in uncertain economic and political times. We look at how global funds can offer investors exposure to a wide range of countries, sectors and markets

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We are living in uncertain times, with numerous economic and political stories playing out around the world. In such a climate, it makes sense to dilute your risk by having a broad spread of investments in your portfolio.

This can be achieved by choosing a fund in the IA Global sector, according to Patrick Connolly, a chartered financial planner with Chase de Vere. Such funds can provide a high level of diversification, making them particularly useful for those investors who do not have huge sums to invest.

“If you are just investing in the UK, then your whole portfolio will be subject to the vagaries of UK markets and the UK economy,” he explains. “This is a very risky approach, especially as we still don’t know what the fallout from Brexit will be.”

A global fund, meanwhile, can give you exposure to a variety of countries, sectors and markets. This can be particularly attractive for those who do not have enough money to diversify sufficiently through buying individual regional or more specialist funds.

They are also appealing to beginner investors who crave diversification but do not want the added hassle of researching and buying different funds. Mr Connolly says such portfolios can serve as effective ‘buy and hold’ products for pretty much everyone.

“This makes them suitable for long-term investments such as pensions, savings for children, or for investors who don’t want to be actively involved in monitoring their investments on a regular basis,” he explains.

It is a message that is being heard by UK investors. IA Global is the second most popular sector behind IA UK All Companies and currently boasts £125.8 billion under management. A whopping £6.6 billion been invested by retail investors in the past year alone.

IA Global was also the best-selling sector in the first two quarters of the year – as well as in five of the first eight months of the year, according to data compiled by the Investment Association.

There is also plenty of choice, with more than 300 funds in this sector and active and passive options available.

However, not all will offer the instant diversification that some investors will seek. This means it is vital investors do not make assumptions about their chosen fund and find out exactly how and where it invests.

While many will have a broad-based outlook other portfolios will focus on specific geographical regions. You will also find sector-specific funds, according to Adrian Lowcock, head of personal investing at Willis Owen.

“It is a diverse bunch of funds and some of these are suitable as core investments while others would be niche positions or satellite holdings,” he says.

Global funds can be used in a number of ways. For example, they can act as a core equity holding from which to build a larger portfolio, as well as enabling investors to tap into particular international trends.

On the downside, taking a global approach means you may be affected by more international issues. For example, the poor economic data coming out of China and Germany, as well increased Middle East tensions and the ongoing Brexit saga.

The different investment philosophies adopted by the funds can also mean performance can vary enormously.

It is very hard to monitor every company, so managers often have processes that filter out the majority of stocks and enable them to focus on companies meeting their particular criteria, according to Lowcock. As a result, some gems may go under the radar.

“Going global frequently means focusing on large or very large businesses at the expense of smaller companies as global managers often do not have the resource or local knowledge to analyse the best small companies around the world,” he explains.

It is a point echoed by Martin Bamford, a chartered financial planner at Informed Choice, who warns that investors can miss out on the growth opportunities offered by fast-developing smaller ventures, as well those in the emerging markets.

“While some advisers will be quick to label the stocks covered by the

IA Global sector as ‘the greatest companies in the world’, they might also be described as ‘the most expensive companies in the world’,” he points out.

Bamford also urges people to pay attention to any biases within different portfolios.

“While funds in this sector offer some geographic diversification, they tend to be heavily weighted towards US equities, with allocations of up to 50% in some cases,” he adds.

However, he acknowledges that IA Global is becoming an increasingly popular sector for investors who wish to take a hands-off approach to country allocation. Given the aforementioned economic and political backdrop, this is easy to understand.

“An investor, who makes asset allocation decisions for UK equities, bonds and property, might decide to allocate the balance of their portfolio to a fund or funds within the IA Global sector,” he says. “This is often easier than making individual country allocation decisions.” 

Rathbone Global Opportunities

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This is a global stock-picking fund that invests in under-the-radar and out-of-favour growth companies. It has a flexible approach to company size, sector and geography. The portfolio takes a concentrated approach with 40 to 60 holdings that represent the highest conviction, best ideas.

Alongside innovative, scalable and sustainable growth companies sit a bucket of defensive names that are less economically sensitive, with slower and steadier growth prospects.

Its manager, James Thomson, was given sole responsibility for the portfolio 14 years ago and enjoys a good reputation in the fund management industry.

FundCalibre, which provides independent research for investors, praises his willingness to admit his weaknesses and past errors, which it brands a ‘refreshingly honest’ approach.

“This fund is a truly active, unconstrained growth funds, run by an experienced manager,” it added. “James’ high-conviction, contrarian strategy has proven itself over many years.”

Technology, financials, consumer goods and consumer services currently have the largest sector exposures in the portfolio.

The fund’s 10 largest holdings, meanwhile, include international giants such as Amazon, Adobe Systems, MasterCard, PayPal and Intuit.

The fund’s main themes are currently the US, mid-caps, consumer-based stocks and the internet, according to Patrick Connolly at Chase de Vere.

“The fund dramatically reduced its weighting to UK stocks following the EU referendum result and is wary of investing too much in the UK while so much uncertainty persists,” he adds.

RATHBONES GLOBAL OPPORTUNITIES

Value of £100 invested in fund over five years

Year

2014

2015

2016

2017

2018

Fund movement in year (%)

9.56

15.6

16.79

20.07

-0.52

Value of £100*

109.56

126.65

147.91

177.59

176.66

*The £100 was invested on 1/1/14. Source Moneywsie.co.uk

Manager

James Thomson

Launch date 

9 May 2001

Fund size

£1.76 billion

Minimum initial investment

£1,000

Minimum additional investment

£500

Initial charge/Ongoing charges

0%/0.78%

Performance fee

None

Annual management charge

0.75%

Contact details for retail investors

Rutm@rathbones.com

First published on 8 January 2020

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