Top 100 Funds 2019: Global growth

NEW ENTRANT: JOHCM Global Opportunities (GB00BJ5JMC04)

JOHCM Global Opportunities had only been available as an offshore fund, but in March this year an onshore mirror version was launched. The offshore version, launched in 2012, has outperformed broad global indices and the IA Global sector average over one and five years.

The fund's managers, Ben Leyland and Robert Landcastle, also place importance on preserving wealth, which could be useful in the near future due to a number of potential threats to markets. The fund has made positive returns in each full year since its launch, including in 2018 when global equity indices and the IA Global sector average recorded negative returns.

“The fund has historically been among the least volatile in the global sector,” say analysts at FundCalibre. “This is because Mr Leyland tends to be more cautious than many of his rivals, with an emphasis on protecting capital, while investing wisely. As a result, its risk-adjusted performance is exceptional. This is, without doubt, an option for a core global holding.”

The fund’s managers have been willing to hold high levels of cash, which has helped reduce volatility, although this could mean that the fund lags its peers and global indices in strongly rising markets, as seen in 2017.

Mr Leyland and Mr Landcastle select holdings by screening out companies with the biggest causes of capital destruction, such as weak franchises, overgeared balance sheets and overvalued assets. They then research high-quality businesses that make a high return on capital, and value them on a best- and worst-case scenario. They particularly like companies where downside risk is low relative to the potential upside.

The fund is well diversified by sector and geography – which also helps to reduce risk and volatility – and is almost entirely focused on developed markets. At the end of July it only had 31 per cent of its assets invested in US equities, which differentiates it from many other global equity funds and broad global indices such as MSCI World, which tend to have much higher allocations to the US.

Jupiter Global Value Equity (GB00BF5DRJ63)

Jupiter Global Value Equity Fund only launched in March 2018, but one of its co-managers, Ben Whitmore, head of strategy for value equities at Jupiter, is a seasoned value investor who can outperform even when this style of investing isn’t in favour, as demonstrated by funds such as Jupiter UK Special Situations (GB00B4KL9F89).

Jupiter Global Value Equity has not performed well over the past year, but value investing – buying equities when their prices seem lower than you think they should be – is an investment style that can go through periods of underperformance. This is because it can take some time for value equities’ prices to reflect their worth. As a result, if you invest in this fund you should have an investment horizon of five years or preferably longer, and a high-risk appetite.

The fund’s X share class has a very low ongoing charge of 0.53 per cent.

Aberdeen Standard Investments Global Smaller Companies (GB00BBX46522)

Aberdeen Standard Investments Global Smaller Companies launched in January 2012, and has outperformed MSCI World Small Cap index and the IA Global sector average over three and five years.

The fund is run by Alan Rowsell, who is supported by the company’s wider equities team. They mainly invest in developed markets, with about 43 per cent of the fund's assets in the US and 11 per cent in the UK at the end of July, although it also includes exposure to emerging markets such as China.

The exposure to smaller companies and emerging markets means this fund is not suitable for investors who cannot tolerate some risk. It experiences periods of volatility, such as we saw last year, although it still outperformed MSCI World Small Cap index.

However, if you have an investment horizon of at least five years and a high-risk appetite, meaning you can tolerate bouts of volatility, this fund could provide more strong growth in the years to come.

BMO Global Smaller Companies (BGSC)

BMO Global Smaller Companies provides exposure to smaller companies via direct investments in the US, UK and Europe. Its investment team, led by Peter Ewins since 2005, aims to invest in high-quality companies at attractive prices with the potential to deliver strong returns, while looking to minimise risk.

The investment trust also invests in areas where its managers have less experience, such as Japan, Asia and Latin America, via funds.

Although not a high yielder, the trust’s dividend has risen for 49 consecutive years. In its last financial year its dividends amounted to 16.5p, up 14.6 per cent on the year before. 

Recent cumulative returns don’t look good versus MSCI World Small Cap index due to underperformance in 2014, 2016 and over the first seven months of this year. But historically the trust has a good performance record and has done better against its official hybrid benchmark, which is 30 per cent Numis UK Smaller Companies (ex Investment Companies) index and 70 per cent MSCI AC World ex UK Small Cap index.

If its performance returns to form, its discount to NAV, which was 5.3 per cent as of 16 August, could swing back to the premium it has traded at when it has been doing better.

Scottish Mortgage Investment Trust (SMT)

Scottish Mortgage Investment Trust has an outstanding recording of outperforming other global equities funds and broad global equity indices such as FTSE World. It also has one of the lowest ongoing charges of all active funds, at 0.37 per cent, making it an excellent core holding for many portfolios – as long as you have a long-term investment horizon and higher risk appetite. Although its long-term returns are outstanding, it can be volatile over shorter time periods.

Its risk profile has increased in recent years because it now holds unquoted investments, and had 42 of these – accounting for 20.5 per cent of its total assets – at the end of July. These have the potential to boost returns, but could also incur substantial losses. The trust is also fairly concentrated, with the top 10 holdings accounting for nearly half of its assets.

The trust’s managers look for strong, well-run businesses that they think offer the best durable growth opportunities.

Monks Investment Trust (MNKS)

Monks Investment Trust is run by the same asset management company as Scottish Mortgage – Baillie Gifford – but by a different team with a lower-risk approach. So if you don’t want the risks and potential volatility of Scottish Mortgage Investment Trust, this might be a good alternative.

Charles Plowden and his team have run the fund for the past four years via an investment process that has delivered strong returns for another fund they run, Baillie Gifford Global Alpha Growth (GB00B61DJ021). And this approach has also been successful with Monks, which has beaten broad indices such as FTSE World and many of its peers in the AIC Global sector over three and five years.

“Since the change in management in March 2015, Monks’ NAV has risen 15 per cent a year, compared with 11.6 per cent a year for FTSE World Index,” say analysts at Numis Securities. “The trust has also rerated from a discount of around 14 per cent to a premium, resulting in share price gains of 19.2 per cent a year. We continue to back the management team, after the rerating, and believe that a portfolio of Baillie Gifford’s best ideas is an attractive vehicle for investors seeking exposure to long-term growth stocks. The willingness to trim stocks based on valuation grounds differentiates Monks from Scottish Mortgage, and leads to a different risk profile.”

Monks is less concentrated than Scottish Mortgage, with its 10 largest holdings only accounting for about a quarter of its assets. And although Monks has recently increased its limit on exposure to unquoted companies from 2 per cent to 5 per cent, this is still far lower than Scottish Mortgage’s exposure to this area.

At the end of its last financial year it held three unquoted companies and had 2 per cent of its assets in Schiehallon Fund (MNTN), which is also run by Baillie Gifford and invests in late-stage, high-growth businesses. Schiehallion does not charge a fee on uninvested funds and the value of Monks’ investment in it will be excluded from the calculation of Monks’ fee, avoiding a double layer of fees.

Monks has a very reasonable ongoing charge of 0.5 per cent.

Rathbone Global Opportunities (GB00BH0P2M97)

Rathbone Global Opportunities has a good record of beating global indices, such as FTSE World and MSCI World, and is in the first quartile of the IA Global sector in terms of performance over three, five and 10 years. The fund’s managers look to invest in under-the-radar and out-of-favour growth companies, but also hold a defensive bucket of holdings that are less economically sensitive, with slower and steadier growth prospects, to manage risk. The fund’s positioning is largely determined by where lead manager James Thomson believes the best investment opportunities are, although he avoids direct holdings in emerging markets.

Lindsell Train Global Equity (IE00BJSPMJ28)

Lindsell Train Global Equity is among the 10 best-performing funds in the IA Global sector over one, three and five years, and beats broad global indices such as MSCI World over these periods. Its management team includes highly regarded manager Nick Train, who has made very strong returns with his funds over the years.

Its managers run a concentrated portfolio, typically of 25 to 35 shares, with a heavy emphasis on consumer companies. They favour companies with sustainable business models and/or established, resonant brands that have demonstrated long-term durability in cash and profit generation. They tend to hold them for the long term, so trading costs don’t eat into a lot of the fund’s returns.

Lindsell Train Global Equity’s D share class has a very reasonable ongoing charge of 0.5 per cent, and its B share class 0.65 per cent.

Fundsmith Equity (GB00B41YBW71)

Fundsmith Equity is in the top quartile of the IA Global sector in terms of performance over one, three and five years, and has an outstanding record of outperforming broad indices such as MSCI World and FTSE World.

Its manager, Terry Smith, targets companies that are resilient to change, with attributes such as the ability to sustain a high return on operating capital, advantages that are difficult to replicate, no need for significant leverage and strong potential for growth from reinvestment of cash flows at high rates of return. He also likes to invest in companies he thinks have attractive valuations.

The fund is very concentrated with fewer than 30 holdings, which it looks to hold for the long term. Consumer staples, healthcare and technology shares account for the majority of its assets, and nearly two-thirds of its assets are listed in the US, although its holdings there are typically global multinational companies.

Some of the panel were concerned about this fund’s size as it had grown to over £19bn by the end of July. However, the fund invests in some of the world’s largest and most liquid companies, meaning that its ability to buy and sell them is unlikely to be affected. And it should be able to continue to invest via its current strategy because it has always favoured companies of this size.

So in view of its outstanding performance we will keep it in the list for the next year but will monitor its size.

Witan Investment Trust (WTAN)

Witan Investment Trust’s in-house investment team sets an asset allocation and then gets 10 external managers to select shares to implement it. Each manager has a different approach in terms of their geographical specialism, investment style or sector expertise. This means the trust is very well diversified across developed market equities and sectors, as well as manager investment styles and individual shares. It provides some exposure to alternative assets such as private equity via direct holdings the in-house team selects.

The trust has increased its dividend for 44 consecutive years and paid out 23.5p in respect of its 2018 financial year, an 11.9 per cent increase on the previous year. The trust aims to grow its dividend ahead of the rate of inflation and over the past five years Witan’s dividend has grown by 63 per cent, compared with a 10 per cent rise in the UK Consumer Price Index.

At present, its cumulative returns do not look good relative to global indices such as FTSE World because it lagged this index last year and over the first seven months of this year. However, Witan Investment Trust has beaten this index in a number of years since Andrew Bell took over as chief executive officer in 2010, and if markets become more volatile it could hold up better than broad indices because its portfolios are actively managed. If its performance returns to form, the discount to NAV, which was 3.8 per cent in late August, could tighten to levels it has traded at in the past when its returns have been better.

Witan could be a good core holding for small portfolios that are not large enough to invest in a wide range of funds. And it could account for the bulk of the equity allocation of investors who are starting out and don’t have much experience, or do not have the time or inclination to asset allocate and research funds.

Unicorn Mastertrust (GB0031218018)

Unicorn Mastertrust is a fund of investment trusts that aims for growth by investing in global equities and alternative assets such as private equity. It is in the top quartile of the IA Flexible Investment sector over three, five and 10 years in terms of performance.

It could be a core holding for first-time investors starting out or with small portfolios. And it could also be the equity allocation of investors who do not have the time or inclination to choose their own funds.