A global equity fund should be at the heart of pretty much every investor’s portfolio, whether the core of a larger portfolio that also includes specialist funds, or the entire equity allocation of small and start-up portfolios. We have a varied selection of funds that should cover the different risk appetites and needs of a variety of investors. However, the idea here is not to hold many of these alongside each other but choose the one that best suits your requirements and hold other types of funds, maybe in smaller allocations, that offer exposure to different investments to these. An exception could if you hold two global equity funds that offer different exposure, for example, one focused on larger companies funds alongside one focused on smaller companies. However, if you do this check carefully to see that the two funds do not duplicate holdings and exposures.
Scottish Mortgage Investment Trust’s managers, James Anderson and Tom Slater, look for strong, well-run businesses that they think offer the best durable growth opportunities. They select investments according to their individual merits and hold them for the long term, as they believe that only over periods of five years or longer are durable competitive advantages and managerial excellence within companies reflected in returns.
The trust has an outstanding record of outperforming other global equities funds and broad global equity indices such as FTSE World. Its ongoing charge of 0.36 per cent is one of the lowest of all active funds, 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. But the trust has performed very strongly amid this year’s volatility, with a NAV return of 51.31 per cent over the first seven months of this year, against a fall of 0.63 per cent for the FTSE World index.
The trust also has a higher risk profile because it has an allocation to 47 unquoted companies, which accounted for 17.1 per cent of its assets at the end of June. These have the potential to boost returns, but could also incur substantial losses. The trust is also fairly concentrated, with its top 10 holdings accounting for over half of its assets at the end of June.
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 Global Alpha team have run the trust since 2015 via an investment process that has delivered strong returns for another fund they run, Baillie Gifford Global Alpha Growth (GB00B61DJ021). They have successfully applied this approach to Monks, which has beaten broad indices such as the FTSE World and many of its peers in the Association of Investment Companies (AIC) Global sector over one, three and five years. It has also held up well amid this year’s recent volatility, with a NAV total return of 14.23 per cent over the first seven months of this year against a fall of 0.63 per cent for the FTSE World index.
Mr Plowden is due to retire at the end of April 2021, at which point deputy manager Spencer Adair will become lead manager, and Malcolm MacColl will continue as deputy manager. However, Baillie Gifford funds tend to be run via a team approach according to a set strategy, so the departure of one manager tends not to result in wholesale change.
“The Global Alpha strategy was established in 2005, and Mr Plowden has been supported by Spencer Adair, who has 20 years’ investment experience, and Malcolm MacColl, who has 21 years’ investment experience,” comment analysts at Numis Securities. “They will continue to be the core of the Global Alpha team, which Helen Xiong, co-manager of Baillie Gifford US Growth Trust (USA), is now joining. The Global Alpha team’s approach has always been heavily team-based, with all investments requiring majority support, and it is long-term in its decision-making. So we do not expect the change to have a significant impact on the way the portfolio is run.
“A diversified portfolio of Baillie Gifford’s best ideas is an attractive vehicle for investors seeking exposure to long-term growth stocks. Monks is differentiated from its stablemates [including] Scottish Mortgage Investment Trust, which is more concentrated with greater exposure to unquoted companies. [Monks’ managers’] willingness to trim stocks based on valuation grounds also differentiates it from Scottish Mortgage, and leads to a different risk profile. The exposure to unquoted investments remains relatively modest at up to 5 per cent of the portfolio. The shift in Monks’ exposure to investment categories changes over time, with cyclical growth companies reducing and rapid growth companies increasing over the past five years, [shows] that while they take a long-term view they are also able to adapt to changes in markets and fundamentals over time.”
Rathbone Global Opportunities (GB00BH0P2M97)
Rathbone Global Opportunities lead manager, James Thomson, and co-manager, Sammy Dow, look to invest in innovative and scalable businesses that are growing fast and shaking up their industries. They want companies that are easy to understand, different to their competitors, durable to change and difficult to imitate. And they like them to have a plan to grow rapidly without running out of money or overstretching their resources.
They invest in companies of all sizes and at the end of July the fund had about 85 per cent of its assets in companies with a market cap of more than £10bn, and 13 per cent in ones with a market cap of between £1bn and £10bn. To reduce risk, the managers hold a defensive bucket of companies with slow and steady growth that should be less sensitive to the economy, and avoid companies listed in emerging markets. The fund had over 60 per cent of its assets in the US at the end of July, but has some exposure to emerging markets via companies listed in developed markets that operate in those areas.
The fund has an excellent track record of beating global indices such as the FTSE World and MSCI World, and most of its Investment Association (IA) Global fund sector peers. It has also held up well amid this year’s volatility, with a return of 21.1 per cent between the start of this year and mid August – well ahead of the FTSE All World and MSCI World indices’ returns of 2.81 per cent and 3.29, respectively.
Lindsell Train Global Equity (IE00BJSPMJ28)
Lindsell Train Global Equity is run by highly regarded manager Nick Train, alongside Michael Lindsell and James Bullock. They look to invest in companies with sustainable business models and/or established brands. And they like these to have a record of long-term durability in cash and profit generation.
The fund has a particularly heavy weighting to consumer companies, which accounted for about half of its assets at the end of July. It typically has a very concentrated list of between 20 and 30 holdings, and the managers don’t often buy and sell holdings. This means that trading costs eat less into returns. Although it increases concentration risk, this is mitigated by the fact that these are typically large, global liquid companies.
The fund has an outstanding long-term performance record, putting it well ahead of broad global indices such as MSCI World and the IA Global sector average. In view of its performance, Lindsell Train Global Equity’s D share class has a very reasonable ongoing charge of 0.5 per cent and its B share class one of 0.65 per cent.
Fundsmith Equity (GB00B41YBW71)
Fundsmith Equity’s manager, Terry Smith, looks to invest in 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 growth potential 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 just 29 holdings at the end of July. Mr Smith looks to hold investments for the long term.
Consumer staples companies accounted for 30 per cent of the fund’s assets at the end of July and it had a similar amount in technology companies. Over two-thirds of its assets were listed in the US, although its holdings are typically global multinational companies.
The fund’s investment strategy has resulted in an outstanding record of outperformance of broad indices such as MSCI World and FTSE World, and the IA Global sector average. However, because of the growth of Fundsmith Equity’s holdings and money from investors coming into the fund it had grown to a size of £20.5bn at the end of July. Two of the panel suggested dropping the fund because of this, although concerns over its size were also raised last year.
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 this and its outstanding performance, we will keep it on the list for this year while carefully monitoring its size and performance.
Jupiter Global Value Equity (GB00BF5DRJ63)
Jupiter Global Value Equity Fund only launched in March 2018. But co-manager Ben Whitmore, head of strategy for value equities at Jupiter, is a seasoned value investor who has outperformed even when this style of investing isn’t in favour, as demonstrated by funds such as Jupiter UK Special Situations (GB00B4KL9F89).
Mr Whitmore invests Jupiter Global Value Equity in companies he and co-manager Dermot Murphy think trade at prices that do not reflect their value. They assess a company’s share price relative to its long-term history, the strength of its market position in comparison to its competitors, any recent or potential changes in its industry, and the company’s ability to turn profits into cash. Rather than making forecasts on the company’s future earnings they try to understand where current earnings are within its historical context. They tend to hold investments for the long term.
Jupiter Global Value Equity offers exposure to different stocks and has a fairly different geographic allocation to many other global funds with, for example, less than a fifth of its assets in the US at the end of July. Its X share class has a very low ongoing charge of 0.53 per cent.
Jupiter Global Value Equity underperformed the MSCI World index and the IA Global sector average last year, and between the start of the year and mid August. Value investing goes through periods of underperformance and this style of investing has generally not done well over the past decade. It can also take time for value equities’ prices to reflect their worth.
So 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 is also fairly concentrated, with only 35 holdings at the end of July, which adds to risk as well as return potential.
JOHCM Global Opportunities (GB00BJ5JMC04)
JOHCM Global Opportunities had only been available as an offshore fund, but in March last year an onshore mirror version was launched. The fund’s managers, Ben Leyland and Robert Landcastle, aim to identify long-term trends and themes, and find undervalued, high-quality companies that benefit from them. They believe that the market persistently underestimates the value created by well-managed companies in growth areas that reinvest wisely. When selecting holdings, they place particular importance on analysing their cash flows.
Mr Leyland and Mr Landcastle aim to keep holdings for the long term and the fund is relatively concentrated, with only 35 holdings at the end of July.
Mr Leyland and Mr Landcastle look to preserve capital and are willing to hold high levels of cash if valuations are unattractive. At the end of July, the fund had over 17 per cent of its assets in cash. It has made positive returns in each full year since its launch in 2012, including in 2018 when global equity indices and the IA Global sector average recorded negative returns.
“The fund has historically been amongst the least volatile in the global sector,” say analysts at FundCalibre. “This is because the manager 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 means that the fund can lag markets when they are rising, and other global equity funds, as it did last year. However, the offshore version of this fund has outperformed the MSCI World index between launch and the end of July 2020. It is well diversified by sector and geography, which also helps to reduce risk and volatility. At the end of July it only had 34 per cent of its assets in North America, differentiating it from many other global equity funds and broad global indices such as MSCI World, which tend to have much higher allocations to this area.
Aberdeen Standard Investments Global Smaller Companies (GB00BBX46522)
Aberdeen Standard Investments Global Smaller Companies has built up a strong performance record but in June its lead manager, Alan Rowsell, stepped down. The fund is now run by Kirsty Dessonand highly regarded smaller companies manager Harry Nimmo.
Mr Nimmo was co-manager of the fund between its launch in 2012 and 2017, while Ms Desson has worked on the fund for seven years, after joining Aberdeen Standard Investments’ smaller companies team in 2012.
The fund will continue to be run via the same process that Mr Nimmo helped devise. This involves assessing the quality, growth, momentum and value of potential investments. The fund’s managers also examine the financial accounts of a potential investment, looking at the quality of its earnings to ensure business sustainability. And they look at what expectations are built into the current price and drivers that could lead to an increase.
We will monitor the fund over the year ahead to see how it performs following the departure of Mr Rowsell.
SRI OPTION: Stewart Investors Worldwide Sustainability (GB00B7W30613)
Stewart Investors Worldwide Sustainability is run by Nick Edgerton and highly regarded Asia investor David Gait, who has made strong returns with funds including Pacific Assets Trust (PAC) and Stewart Investors Asia Pacific Sustainability (GB00B0TY6V50).
Mr Edgerton and Mr Gait invest in companies they think can benefit from and contribute to the sustainable development of the countries in which they operate. They look to invest in companies that manage sustainability risks and opportunities, and make a positive contribution in this respect. Mr Edgerton and Mr Gait include environmental, social and corporate governance considerations in their research, and engage with companies on sustainability issues.
At the end of July, the fund had nearly three-quarters of its assets in healthcare, information technology and consumer staples companies. It is well diversified geographically, with roughly a quarter of its assets in each of North America and Europe and Middle East ex UK, and 16 per cent in Japan.
In keeping with the Stewart Investors investment style, this fund tends to do better in falling markets and can lag strongly rising ones. For example, in 2018 when the MSCI World and FTSE World indices recorded negative returns, Stewart Investors Worldwide Sustainability returned 0.51 per cent. And last year when these rose by 22.74 and 21.64 per cent, respectively, the fund returned 12.4 per cent.
However, this translates into outperformance over the long term, with the fund ahead of these indices and the IA Global sector average over one and five years.
|Fund/benchmark||1-year total return (%)||3-year cumulative total return (%)||5-year cumulative total return (%)||Ongoing charge plus any performance fee (%)||Morningstar Sustainability Rating|
|Lindsell Train Global Equity||(3.3)||43.6||125.6||0.50||High|
|Rathbone Global Opportunities||22.3||59.7||135.0||0.53||Above Average|
|Stewart Investors Worldwide Sustainability||4.8||19.8||85.5||0.91||Average|
|Monks Investment Trust||24.3||51.8||151.2||0.48*||Below Average|
|Scottish Mortgage Investment Trust||85.8||133.2||318.4||0.36*||Average|
|ASI Global Smaller Companies||9.5||29.8||115.3||0.78||Average|
|Jupiter Global Value Equity||(7.8)||NA||NA||0.53||Average|
|JOHCM Global Opportunities||(5.4)||NA||NA||0.99||Average|
|MSCI AC World index||6||24.6||86.8|
|MSCI AC World Small Cap index||(2.1)||7.9||62.9|
Source: Morningstar, *AIC.
Performance data as at 31 August 2020.
**Data shown is for a different share class to the one indicated in the text
For all our selections across various sectors, see below: