Long-term exposure to equities should be a core feature of any growth portfolio. However, for many the ability to discern which markets warrant attention has become more difficult. Individual regions such as the UK, the US, Europe or emerging markets all face different headwinds. While some issues facing the world's markets are linked, many are not, meaning investors could be wise to turn to a global equity fund with the ability to alter geographic allocations, run by a manager with a good growth and defensive record.
Good long-term record
Proven stock-selection strategy
Mitigates individual market risk
High technology sector exposure
Potential short-term volatility
One such option is Rathbone Global Opportunities Fund (GB00BH0P2M97). It has been managed by James Thomson for over 10 years, in which time he has studiously implemented a balance of growth and defence while continuously and consistently outperforming peers and benchmarks.
Mr Thomson focuses his attention on developed markets, with just over 60 per cent of the fund invested in US equities. There is also significant weightings to Europe ex UK. Mr Thomson seeks companies that he believes will see share price growth ahead of global equity markets. Specifically, he looks for scalable businesses that he can see becoming larger companies in three years.
This means he tends to hold a larger number of small- and medium-sized companies than peers, but blends these with megacap stocks as well, creating a portfolio with between 40 and 60 stocks. To ensure growth, Mr Thomson selects companies that have pricing power, product differentiation and that function in markets with barriers to entry to help safeguard the company’s sustainability. He tends to avoid businesses whose growth is predicated on external, cyclical factors and that need restructuring or are turnaround businesses, giving him some more protection in times of economic uncertainty.
Such a strategy invariably leads him to focus on asset-light technology stocks, with the top holding Amazon (US:AMZN). However, the fund isn't simply riding the FAANG wave; Mr Thomson also includes payment companies PayPal (US:PYPL), Visa (AUS:VIE) and MasterCard (US:MA). His high US exposure is a symptom of preferring companies like these rather than a macroeconomic call.
Mr Thomson joined the fund in 2003, was appointed lead manager in 2005, and was joined by Sammy Dow in 2014. His experience has seen him cope with a range of market conditions, including the 2008 global financial crisis, and he is not afraid to shift geographic and economic cyclical exposure in response to fundamental shifts. For example, following the 2008 crisis, Mr Thomson allocated around 20 per cent to large-cap, less economically-sensitive stocks, and following the 2016 EU referendum reduced exposure to UK stocks from 28 per cent to 4 per cent.
This stock selection criteria and flexible and active management have produced the goods, both in bull markets and in bear markets. The fund has outperformed the FTSE World index and the IA Global sector average return over one, three, five and 10 years – returning 316 per cent over the past decade versus a 230 per cent rise in the index and a 175 per cent average return from the sector. In more volatile times, such as 2018, the fund also did well, ending the year flat while markets fell over 3 per cent.
However, this fund does not come without risks. Mr Thomson’s penchant for mid-cap stocks and his sector and geographic allocations mean that there is the potential for bouts of higher volatility. The fund is also not as diversified as other managers or its benchmark, with a heavy exposure to the US. Investors should also be aware this is a high-risk equity fund and should be prepared to hold this for the long term.
However, Mr Thomson mitigates these risks by creating a diversified portfolio and combining this with his knowledge of when to change and exit positions. His long-term track record and his reduction in UK stocks following the Brexit referendum vote suggests he knows what to do and when. So, for exposure to growth equity markets while managing geographic risk, Rathbone Global Opportunities is a strong choice. ZB
Rathbone Global Opportunities Fund (GB00BH0P2M97)
PRICE: | 116.92p | MEAN RETURN: | 16.14%* |
IA SECTOR: | Global | SHARPE RATIO: | 1.41* |
FUND TYPE: | Unit trust | STANDARD DEVIATION: | 10.38%* |
FUND SIZE: | £1.5bn | ONGOING CHARGE: | 0.96% |
No OF HOLDINGS: | 60 | YIELD: | 0.08% |
SET-UP DATE: | 09/05/2001 | MORE DETAILS: | rathbonefunds.com |
MANAGER START DATE: | 1/11/03 & 1/07/14 |
Source: Rathbone Unit Trust Management, as at 31/03/19, *Morningstar, as at 13/05/19
Performance
Fund/Benchmark | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) |
Rathbone Global Opportunities | 9.34 | 65.26 | 114.27 |
IA Global sector | 2.99 | 46.03 | 61.81 |
FTSE World index | 3.61 | 51.44 | 77.32 |
Source: FE Analytics, as at 13/05/19
Top 10 holdings, as at 31/03/19 (%)
Amazon | 3.2 |
Align Technology | 2.8 |
Adobe Systems | 2.6 |
PayPal Holdings | 2.6 |
MasterCard | 2.3 |
Visa | 2.3 |
Tencent | 2.2 |
Intuit | 2.1 |
Rollins | 2.0 |
Salesforce.com | 2.0 |
Source: Rathbone Unit Trust Management
Geographic breakdown, as at 31/03/19 (%)
US | 66.0 |
Europe ex UK | 23.9 |
UK | 6.1 |
Asia Pacific | 2.2 |
Cash | 1.8 |
Source: Rathbone Unit Trust Management