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Benefit from the global growth story

FUND TIP: M&G Global Basics Fund invests in the building blocks of the global economy
July 23, 2009

BULL POINTS:

■ Top performer in sector

■ Skilled manager

■ Set to benefit from emerging markets growth story

BEAR POINTS:

■ Heavily dependant on supply & demand factors

■ Currency risk

The massive debt overhang in the world's developed economies juxtaposed with the significantly stronger position of emerging market countries thanks to lower levels of debt, higher savings rates and robust domestic consumption has sounded the call for investors to look for growth, globally.

"Global funds - provided you have the appetite for risk - demonstrate portfolio diversification of assets, regions and sectors. Using a global fund in an investment portfolio should potentially provide access to the best companies in the sectors and assets that a home market bias can not deliver directly," says Andy Parsons, advice team manager at retail stockbroker, The Share Centre.

With a portfolio made up of global leaders in the basic industries the M&G Global Basics Fund is structured to do just this.

The fund focuses on companies in basic industries and sectors such as utilities, energy, raw materials, industrials, consumer basics and commodities, as well as the companies that service these areas. Together, these companies are regarded as the 'building blocks of the global economy' because their products and services are rarely out of demand. The root of the fund's investment strategy is to identify structural changes in economies or shifts in consumption patterns around the world.

Instrumental in the design of the fund's investment strategy, Graham French has been managing the fund since its launch on 17 November 2000. Since launch the fund has been ranked first out of 90 funds in the IMA Global Growth sector, illustrating Mr French's knack for identifying investment themes that will be key long-term drivers of growth at an early stage.

"The industrialisation and growing wealth of China and other 'emerging' economies has led to rising demand for consumer products and services. Although economic growth has slowed sharply throughout the world, it remains considerably stronger in many 'emerging' economies than in the developed world, much of which is in outright recession. What is more, consumer spending in these regions has remained relatively resilient, supported by long-term trends of rising incomes and urbanisation.

"To take advantage of these trends, I mainly invest in financially sound, well-managed western companies which offer everyday products or services to consumers and businesses in developing economies," explains Mr French.

While he predominantly operates a 'bottom up' approach, Mr French combines this with an economic overlay that considers how political policy and economic conditions will affect the supply and demand factors of the companies in which the fund invests.

Mick Gilligan, head of research at stockbroker Killik & Co, likes the fund's strict selection criteria and its focus on the spending power of the emerging market consumer. "The portfolio holds a number of stocks listed in developed markets with increasing emerging market revenues, such as Colgate Palmolive, that should benefit from the relative strength of the middle classes in the developing world."

The fund typically invests in between 50 and 80 companies, with the top holdings varying in size generally between 3 per cent and 5 per cent of the overall portfolio. On occasion, the fund may be majority weighted towards medium and small capitalized companies.

"This fund is suitable for those investors that are looking for global exposure to the global basics constituents, but investors need to appreciate and understand the risks associated with global companies - such as the supply and demand factors, political risk and currency factors. However, by being global, you do have the added benefit of not being directly exposed to just one global region of the world," says Mr Parsons.

Key fund data:

M&G Global Basics Fund
PRICE415.69p3-YR SHARPE RATIO                       -0.13*                     
SIZE OF FUND£2782m1-YR  PERFORMANCE-25.39%
No OF HOLDINGS563-YR PERFORMANCE-4.96%
SET UP DATE17-Nov-005-YR PERFORMANCE 76.32%
MANAGER START DATE17-Nov-00TOTAL EXPENSE RATIO1.7%*
BETA0.82YIELD0.22
VOLATILITY4.67MINIMUM INVESTMENT£500
TRACKING ERROR3.38MORE DETAILSwww.mandg.co.uk

Source: M&G, www.ft.com/funds, *Morningstar

Top ten holdings:

Holding Percentage
Sims5.19%
Eramet4.72%
Tullow Oil4.66%
Unilever4.24%
Lonmin3.90%
Colgate-Palmolive3.78%
Johnson Matthey3.60%
Constellation Brands3.40%
Agrana Beteiligungs3.18%
Dentsply International3.13%

Sector breakdown:

CountryPercentage
Basic Industries31.50%
Consumer Goods30.46%
Industrials17.26%
Consumer Services6.96%
Healthcare6.27%
Oil & Gas4.66%
Financials1.64%
Cash1.26%