The Investment Association's global and global equity income sectors have produced 13 of the worst funds over a three-year period accounting for £8.6bn of investors' money, according to Tilney Bestinvest's latest 'spot the dog' report.
The worst performing funds include Aberdeen World Equity Income (GB00B3N9CY25), M&G Global Basics (GB0030932452) and Kennox Strategic Value (GB00B2R8FY91). They all failed to beat the MSCI AC World or MSCI World for three consecutive years with an underperformance of at least 10 per cent over those three years.
Aberdeen World Equity Income and M&G Global Basics have returned 1.2 per cent and 7.9 per cent in cumulative returns over three years according to Trustnet data and produced returns on a £100 investment barely creeping over the £105 mark according to Bestinvest. In contrast the MSCI AC World index returned 42.6 per cent over three years and MSCI World returned 48.8 per cent.
Why have the funds underperformed?
When examining an underperforming fund it is worth checking differences between share classes. In the case of the top three global and global equity income dog funds according to Bestinvest, it is the older, more expensive share classes which have underperformed. But the difference in performance between the old and newer share classes only accounts for a couple of percentage points so does not fully explain the lag behind the benchmark.
A major trend among the worst performing global equity income funds is an underweight position to the US, which has been one of the strongest regions in recent months in terms of share price returns, though has tended not to be a high-yielding area in the past. Aberdeen World Equity Income has just a 14.4 per cent exposure to the US, the Kennox fund has an 11 per cent exposure and the M&G Basics fund is underweight its index - FTSE Global Basics - when it comes to the US.
That is a stark contrast to the best-performing fund in the global and global equity income sectors over three years according to Trustnet - Baillie Gifford Global Discovery (GB0006059116) - with 37.06 per cent invested in the US. Another top performer is Artemis Global Growth Acc (GB0006795743), with 34.77 per cent invested in the US.
Yields of some of the top performers have been rising, signalling a changing attitude towards US dividends, with global funds that cling to the UK and emerging markets losing out.
Artemis Global Income (GB00B5N99561) is Bestinvest's 'pedigree' fund and has 31.3 per cent invested in the US. Over three years it has returned 71.9 per cent according to Trustnet compared with an index return of 48 per cent, and carries the highest yield in the sector, at 3.4 per cent. At the end of June manager Jacob de Tusch-Lec said he expected growth in the US to pick up and "US consumers to start spending".
The fund's top holdings include US pharmaceutical giant Abbvie (0QCV), which makes up 3.3 per cent of the portfolio and JPMorgan Chase (JPM), at 2.2 per cent. However he is still most overweight Europe and in recent months the fund has actually fallen below its benchmark due to the impact of rising Greek bond yields and ownership of Greek lottery operator OPAP.
Hargreaves Lansdown's favourite Global funds include Lindsell Train (IE00BJSPMJ28) and Newton Global Income (GB00B7S9KM94). Both are among the top performers over a three-year period according to Trustnet data. Both have a higher mix of consumer discretionary stocks than Artemis and have delivered good performance in three years.
Tilney Bestinvest's 'global dogs' and ongoing charges
3-yr return on £100* | Relative 3-yr return % | 3-yr cumulative return %** | Ongoing charge | |
Aberdeen World Equity Income A Inc | 106 | -27 | 1.2 | 1.66 |
M&G Global Basics A Acc | 109 | -26 | 7.9 | 1.68 |
Kennox Strategic Value Prof Inc | 120 | -21 | 16.5 | 1.44 |
Aberdeen World Equity A Inc | 121 | -20 | 15.5 | 1.66 |
Aberdeen Ethical World Equity A Acc | 122 | -19 | 15.9 | 1.64 |
St James's Place Ethical | 123 | -18 | 15.3 | 1.63 |
CF JM Finn Global Opportunities A Acc | 122 | -17 | 23.1 | 1.78 |
CF Canlife Global Equity Income B Acc | 131 | -13 | 30.1 | 1.19 |
First State Worldwide Equity A Acc | 127 | -13 | 27.7 | 2.06 |
Miton Global Equity Ret | 127 | -13 | 20.3 | 1.83 |
St James's Place High Octane | 133 | -12 | 33.8 | 2.14 |
BlackRock Global Income A Acc | 131 | -11 | 29.5 | 1.68 |
Newton Global Income B Acc | 130 | -11 | 31.8 | 1.12 |
Source: Tilney Bestinvest, Trustnet, Morningstar, as at 3 August 2015
Recommended global and global equity income funds
Fund | Recommended by | Ongoing charge | 3 yr cumulative return %** |
Artemis Global Income I | Tilney Bestinvest | 0.84 | 71.5 |
CF Odey Opus I | Tilney Bestinvest | 1.05 | 61.3 |
Fundsmith Equity I Acc/I Inc | Chelsea | 0.99 | 68.5 |
M&G Global Dividend I Acc/Inc | Chelsea | 0.91 | 29.7 |
Rathbone Global Opportunities Inst Acc | Chelsea | 0.8 | 62.4 |
Lindsell Train Global Equity D | Hargreaves | 0.63 | 73.5 |
Newton Global Income W Acc | Hargreaves | 0.8 | 33.2 |
Source: Trustnet, Morningstar, as at 3 August 2015
*To 30 June 2015
**To 3 August 2015