Investors rush for global growth

3 March 2008

Volatility across the global equity markets has left many investors spooked about what the future holds for the world's stockmarkets and tolerance to risk is at a low.

Which is why it may come as a surprise to learn that global growth funds overtook cautious managed funds as the best selling retail funds sector in January 2008, according to figures from the Investment Management Association. Global growth funds enjoyed a strong year of growth in 2007, but this is the first time the sector has come out top in the IMA’s league table.

With a host of good quality global growth funds delivering strong performance over the last few years (see table below), this interest may not be wholly unexpected. But what next for the sector? Are global growth funds yesterday’s good news, or are they still a good place for your cash?

Global growth funds have a prime objective of achieving capital growth and do so by investing at least 80% of assets in equities but no more than 80% in UK assets.

Matt Pitcher, wealth adviser at Towry Law, believes the global growth story has been promoted by some IFAs who are keen to reassure clients that there are still growth opportunities out there.

He said: “The assumption is that because the overseas markets are doing well then global equities will outperform the UK’s. But this is lazy advice. I take the view that if everyone else is there already then I need to look somewhere else.”

Pitcher’s biggest criticism of global growth funds is that they are “generic baskets”.

He explained: “These funds offer no specific knowledge of a country or region. This ignores the massive variety across global markets.”

Terry Coles, manager of the F&C Investments Global Growth fund, agrees that it is a “big universe”. But he said: “At F&C we work with regional desks to ensure we have up-to-date and highly specific information relating to specific countries. The fund is run by centralised decision making but I think this is an advantage as it means we have more focus on the overall risk of the fund and can take an overall portfolio manager view. This has helped global growth funds perform so well in the past year.”

It is precisely this strong performance of global growth funds that has made them so popular with IFAs and investors keen to take a balanced approach, according to Ben Willis, head of research at Whitechurch Securities.
He said: “Global growth funds have been largely ignored over the years but the performance of some quality funds and the continuing backdrop of uncertainty to the markets means people have taken another look.

“Investors are looking to diversify because of market volatility – they are worried that there is more bad news around the corner, like a recession in the US or even the UK and the China bubble bursting. However, they still want exposure to global markets and would rather rely on fund managers to make regional decisions for them.

“Investors in global growth funds want to have their cake and eat it too.”

However, Pitcher warned against judging funds or sectors purely on the basis of past performance. “Investors always flood to what they think will be the next big thing but historically the most popular sectors one month perform horrendously the next," he explained. "My advice to investors would be to bite the bullet and invest in a mix of every asset class. It’s a dangerous game to try and time the markets – even the professionals can’t do it most of the time – so going for a balance is the best option.”

Long-term strategy

Pitcher believes that investors are likely to shift away from global growth funds once the UK equity market starts to recover and that cautious managed funds will once again become the best selling sector.

He added: “The irony is that when investors see double digit growth on the stockmarket their tolerance to risk increases. But when they see single figure losses they become more risk adverse. People shouldn’t react to short-term fluctuations – they need to take a long-term view of the markets.”

Coles agrees that a long-term view is essential when it comes to investment – especially in global growth funds. He said: “Now is not a bad time to start investing again but only it you’ve got a long-time view – say three to five years.

“The global market is looking positive with the best opportunities in Asia and the other emerging markets, and even US companies.”

Willis said: “The type of investor suited to global growth funds is risk averse, in that they aren’t prepared to invest in a single market or asset, but they also want to take a punt and being in the global markets. But they must have at least a five year view of the markets.”

Top three global growth funds (one-year performance):

Name Performance (one year) FT risk rating Yield Charge
M&G Global Basics A Acc GBP 22.8% Medium 0 1.5%
Rathbone Global Opportunities Acc 20.1% Medium
0 1%
Neptune Global Equity A Acc 16.9% High 0.15 1%
Source: Interactive Investor 04/03/08

Top three global growth funds (three-year performance):

Name Performance (three years) FT risk warning Yield Charge
Neptune Global Equity A Acc 103.7% High 0.15 1%
M&G Global Basics A Acc GBP 83.6% Medium 0 1.5%
Rathbone Global Opportunities 71.6% Medium 0
Source: Interactive Investor 04/03/08

Top three global growth funds (five-year performance):

Name Performance (five years) FT risk warning Yield Charge
Neptune Global Equity A Acc 250.5% High 0.15 1%
M&G Global Basics A Acc GBP 248.1% Medium 0 1.5%
City Financial MM Growth Acc 210.7% Low 0 1%
Source: Interactive Investor 04/03/08


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