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December 1, 2014

Monday Morning Memo: Exposure to Global Equities in European Funds of Funds

by Jake Moeller.

Lipper’s Jake Moeller examines how European fund buyers are gaining exposure to global equities funds in October 2014.

Reuters/ Yves Herman

Reuters/ Yves Herman

Global equities funds generally pose a particular problem for fund-of- funds managers. Because of their broad based geographical exposure, they tend to be eschewed by selectors in favour of region-specific equities funds. With region-specific funds, favoured countries and parochial tastes can be accommodated.

The variation between geographical equity sectors has been considerable in 2014, with asset allocators over the 12 months to October 31,  2014 benefitting considerably if they had an overweight to the U.S. and Japan (13.2% and 12.9%. respectively) as opposed to, for instance, the U.K. and Russia (-0.4% and +1.3%, respectively).

Table 1. 12 Month Performance of Selected Lipper Regional Equity Classifications (to October 31, 2014, in local currency)

Source: Lipper, a Thomson Reuters company.

Source: Lipper

The eclectic mix of the sector is reflected in the variation of returns of funds purchased. The best performing fund over 12 months to October 31 – HWB Alexandra Strategies Pf V 1 –returned a stellar 35.6% and was purchased by only one astute buyer. The resource-heavy funds fared less well at the other end of the spectrum with Earth Exploration Fund UI (EUR R) with seven buyers, posting a loss of -18.8% over the same period.

Looking at fund purchases of global equities up in October 2014 (including global income and mid and small caps for completeness), it is clear that thematic considerations influence European fund buyers considerably in this sector. The most popular fund by far with over 2% of the entire sector AUM exposure in October is M&G Global Dividend C EUR Acc. This clearly reflects the ongoing desire by investors and fund managers alike for dividend income in an ongoing low interest rate environment. This fund also produced a respectable 12% return for the 12 months to 31 October.

Other thematic funds such as RobecoSAM Sustainable Water Fund C (six buyers) and Sarasin Sustainable Water Fund A EUR (six buyers) proved popular. So did Pioneer Funds Global Ecology A No Dis EUR (six buyers) and the power generation-themed fund 4Q-SMART POWER, which was purchased by 17 buyers.

Table 2. European Buyer’s Most Popular Funds in the Global Equities Sector.

Source: Lipper, a Thomson Reuters company.

Source: Lipper

Broad-based geographical exposure within the popular funds has been best represented by passive options. Lyxor UCITS ETF MSCI World D-EUR and iShares MSCI World UCITS ETF (Dist) with a combined 39 buyers, both appear in the top ten spots. It is possible in this instance that fund managers have sought a quick beta exposure to the market and will allocate to active funds in due course. Or these managers could be more concerned about the general bond/ equity split within their portfolios rather than geographical differences.

Indeed, examination of the wider list of funds bought in the global equities sector in October (some 800 funds overall) reveals the prevalence for thematic funds throughout rather than broad based equities funds.


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