The World Looks Increasingly American

Using the Lipper Leaders scoring system to analyse the best-performing funds in the IA Global sector.

Global funds give investors exposure to a portfolio of equities, diversified… well, globally… but with a bias to developed markets such as Europe and North America. Over the past few years, however, many of these funds—and certainly the broad indices—have had a pronounced American accent.

Given market conditions, that doesn’t seem to have hindered their popularity. If anything, it has strengthened it.

On any given month, US equity funds vie with Global for the top slot in terms of investor popularity, although over the past 12 months, Global flows are ahead. The role played by US mega-caps—not least the Mag7—have weighed in the US’ favour. But they have also increased the weight of US stocks in global indices as their market caps have ballooned. For example, five years ago, the weight of the US in the FTSE All-World index was about 52%. Now, it is a nudge away from 60%. That’s of more than academic interest, as it means that greater risk is concentrated within the US. But it’s also meant a stronger sector skew, as over the same period the weight to information technology has increased by more than ten percentage points, to more than 25%.

So, while US tech keeps making the running, this will act as a fillip for your average global equity fund. But the reverse is also true. While it has long been the case that when the US sneezes, the world catches a cold, that will likely now translate to full-blown flu. Geographical diversification is not necessarily a panacea, as stocks and industries around the world can be highly correlated to Microsoft, Amazon, Nvidia and the like.

For good or ill, the US has greater weight, in many senses, in global equity markets.

That said, what leads our table this month aren’t typical Global funds but, as is often the case since the IA sectors opened up to ETFs, sector funds. That can swing from IT to cleantech. This time, over three years, it’s energy.

Skipping over the two energy funds that come top of the pile, there are some interesting results. For example, Ranmore Global Equity USD Investor offers a portfolio that is rather different from the benchmark. Although it has lagged year to date, it strongly outperformed over 2022 and 2023, especially the former, where it returned 14.7%, when its MSCI World index benchmark fell 7.4%. While it’s ahead of the benchmark over three and five years, it has lagged over ten. It’s therefore no surprise that it’s a very different portfolio to the index: for instance, it’s weighting to the US is less than 20%, which is certainly a bold call in this environment. Its MSCI World benchmark seems something of an oddity, as this is a developed market-only index, while the fund itself has significant emerging market exposure. China, for example, is its second largest weighting. It’s certainly an interesting fund, very much an active vehicle, but investors should expect to get something substantially different to the return of global indices.

Royal London Global Equity Select retains its place in the table from when we reviewed the sector last year. It is less of an outlier in terms of portfolio construction, with the US weighted to about 60% and information technology at around 23%. And, while it does have some emerging market exposure, it seems to generally run well short of 10% of the portfolio. Its performance looks pretty steady (though, those disclaimers are not wrong—past performance is no guide to the future) and it scores the highest Lipper Leaders rating of 5 over both three and five years.

Table 1: Top-Performing Global Funds Over Three Years (with a minimum five-year history)

All data as of August 31, 2024; Calculations in GBP

Source: LSEG Lipper

This article first appeared in the October edition of Moneyfacts (p17)