Using the Lipper Leaders scoring system to analyse the best-performing funds in the IA Global sector.
Long ago (about two decades, to be a tad more precise), UK investors enjoyed their home comforts: domestic equities were the place to be. But things change.
Investors have been steadily increasing their exposure to global equities over the course of this century. In 2003, by Lipper Global Classification, Equity Global and Equity Global Income funds combined stood at £20.4bn, and their UK equivalents at £95bn, so global funds were 17.7% of total combined assets. By 2021, those figures stood at £271.7bn and £268.7bn, respectively. Global funds were 50.3% of UK and global equity assets combined.
That’s a dramatic shift.
Is this driven by performance? This makes a certain intuitive sense: after all, between the global financial crisis and the pandemic, it’s been a growth-driven market, with cheap money and large tech reaping many of the rewards. The UK was disadvantaged, being a value-driven market with a small technology sector.
There may be an element of performance chasing, but it’s not a straightforward story. Three of the four years prior to the GFC UK equities outperformed and continued to outperform on an annualised basis for the five years after the crisis, albeit significantly underperforming in the crisis year of 2008. Global equity has outperformed over six of the past eight years. It’s not been a one-sided game.
It’s most likely that UK investors have been rectifying their domestic overweight. This has been done irrespective of market conditions, and global equity funds have been the main beneficiary.
And it is still changing, with little change in pace in sight: over the 12 months to the end of August, the sector attracted almost £10bn, with £3.57bn in the last three months alone.
The attractions are obvious: you get the broadest possible exposure to global stock markets. Given the febrile markets investors are having to navigate through, placing your bets broadly makes sense.
That said, the US has been driving the market year-to date[1]: or, more particularly, the “Magnificent Seven” mega-caps at the top of the S&P 500 index. The story was very different last year when the same companies were badly hit. As a result, the table below—the top three funds by return over three years—looks rather different than it would over one year or year to date (and, therefore, validating the wisdom of those broad bets).
Over three years, it’s noticeable that specific sector and factor funds are prevalent: SPDR MSCI World Energy UCITS ETF, L&G Battery Value-Chain UCITS ETF, Fidelity Funds – Global Industrials, and Denker Global Financial funds. That’s great if you want to express a particular view in your portfolio at this level, especially given the tradability of ETFs. However, second placed Royal London Global Equity Select gives a broader, actively managed global exposure. As of July, it had more than 60% in the US, and almost 80% in North America as a whole, but this will be a position that shifts over time. So to does its sector exposure, with its current top weighting in technology clearly working in its favour, with Microsoft and Amazon together comprising 13% of the portfolio.
Despite the fact that growth has roared back this year, it is interesting to see that three distinct value-inclined funds make it into the table: MFS Meridian Funds-Contrarian Value, Ninety One Global Special Situations, and Schroder Global Recovery. They have very different portfolios to Royal London’s, with the Meridian fund having a bare 7.7% in the US in July, and little crossover between the top-10 holdings.
Table 1: Top-Performing Global Funds Over Three Years (with a minimum five-year history)
All data as of August 31, 2023; Calculations in GBP
Source: LSEG Lipper
[1] I updated a study I conducted in June of fund returns by style factor (growth, value or core) and geography of global funds, and US-dominated funds still led the market: https://lipperalpha.refinitiv.com/2023/07/identifying-winners-and-losers-in-the-growth-rebound/
This article appeared in the August edition of Moneyfacts, p17.
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