Investors in the IA Global and IA Global Equity Income sectors appear to have a limited choice when looking for funds that have made money when the market has sold off, FE Trustnet research suggests.
In a recent article, FE Trustnet revealed that Invesco High Income (UK), Fidelity Special Situations and AXA Framlington UK Select Opportunities are some of the UK funds that performed best when the FTSE All Share sold off. We also found that these outperforming funds tended to fall less hard than the index, on average, when they did lose money.
Here, we turn our attention to the IA Global and IA Global Equity Income peer groups to see which portfolios have made money in quarters when the MSCI World index was down. But while there are some funds that have generated positive returns in these down quarters, it appears that most of these tended to fall harder than the index when they joined the sell-off.
During the 75 quarters spanning 1 January 2000 through to 30 September 2018, the MSCI World lost money in 22 of them. The average fall stands at 7.18 per cent while the worst three-month period saw the index drop 20.89 per cent (in the aftermath of the dotcom crash).
Source: FE Analytics
Of course, there isn’t a single fund in the two peer groups that managed to make positive returns in each of the index’s down quarters. Looking at the 66 funds with a track record that goes back to at least 1 January 2000, only six have been in black in more than one-quarter of the MSCI World’s down periods.
Appearing at the top of the list is Carmignac Investissement. This €3.4bn fund has made a positive return in nine of the 22 quarters under review, giving it a success rate of 40.9 per cent; its average loss in these down periods stands at just 2.15 per cent – although it must be noted that its weakest quarter saw it fall 26.78 per cent during the dotcom sell-off.
It had been managed by Edouard Carmignac since launch in 1989 but David Older took over the portfolio in September 2018. The fund was historically driven by a top-down process, although Older’s style will see less emphasis on macroeconomic trades and more on bottom-up analysis.
In an update at the end of 2018’s third quarter, the manager said: “We continue to believe that a global monetary tightening, coupled with a cyclical slowdown and trade tensions constitute a real risk for financial markets.
“Such environment will require a solid portfolio construction, which we are convinced should be made up of ‘quality’ companies – those with strong and predicable growth and lower levels of leverage, while avoiding cyclical exposure.”
Joining Carmignac Investissement at the top of the list in this research is Schroder ISF Global Energy. It has also made a positive return in 40.9 per cent of the MSCI World’s down quarters but the average loss has been higher than the Carmignac fund’s at 5.64 per cent; in recent years, it has also tended to fall much harder than the index in down periods, which can partly be attributed to the end of the ‘commodity supercycle’.
Another specialist fund – Schroder Global Healthcare – is in third place after making money in 31.8 per cent of the index’s down quarters. Its average fall was 3.69 per cent, with the worst being 18.24 per cent, which was better than the index.
Source: FE Analytics
The next three funds on the list are more generalist options and have made positive quarterly returns in 27.3 per cent of the MSCI World’s down periods. However, only one of the three has posted a smaller average loss than the index.
Artemis Global Growth, which is managed by Peter Saacke, makes use of Artemis’ SmartGARP system, which is a proprietary analysis system that looks at growth, value, estimate revision, momentum, top down and fund manager sentiment. The fund’s average loss in quarters that the MSCI was down stands at 9.28 per cent, however, meaning it has fallen harder than the index when it joined the sell-off.
FE Alpha Manager Douglas Brodie’s Baillie Gifford Global Discovery is another that has made money in some sell-offs but its average loss has been higher than the index at 8.03 per cent. The fund focuses on small-caps, which means its performance will be different to the MSCI World and has the potential for higher volatility.
Investec Global Strategic Equity is the only fund of these three that has a lower average loss than the MSCI World; it comes in at 6.63 per cent. This portfolio is run by Mark Breedon, who uses Investec’s 4 Factor mainstream global equity process; this scores stocks on quality, value, earnings dynamics and technical criteria.
Of the remaining funds on the above table, the ones that have posted better average losses than the index are Liontrust Global Income, Jupiter Merlin Worldwide Portfolio, LF Adam Worldwide, M&G Global Themes and Orbis Global Equity.
Our data also shows that only one fund has failed to make money in any of the quarters that the MSCI World sold off. This is the £969m Scottish Widows Global Growth fund.
The above only looks at funds with a track record covering the MSCI World’s full 22 down quarters since 2000. This significantly reduces the number of eligible funds, so we loosened the criteria to those with histories spanning the past 12 to 21 down quarters (which captures the 2008 crash).
Source: FE Analytics
As the table shows, SKAGEN KonTiki is the best performer from this expanded sample of funds. It has a track record that covers 17 of the MSCI World’s negative quarters and it made money in 35.3 per cent of them. During the index’s 17 down quarters, its average loss was 6.26 per cent; the fund’s average loss was 5.66 per cent.
SKAGEN KonTiki’s differing performance to the index can be explained by its focus on emerging markets, as the MSCI World is made up of developed market stocks. The portfolio is built around low-priced, high-quality companies, predominately from emerging economies, with the aim of generating the best possible risk-adjusted return.
Of the funds on the above list, every fund aside from First State Global Resources has posted a lower average loss than the MSCI World for the down quarters that they share with the index.