Earlier this year, one of our studies showed that more than 75 per cent of funds in the IMA Global sector have failed to beat the MSCI World index over five years, leading Equilibrium investment manager Mike Deverell to argue that many members of the peer group can be viewed as “closet trackers”.
“Two things that are going to help you outperform are low charges and a high active share and in this sector they have high charges and a low active share, so expensive trackers are often what you get,” he told us.
“For some reason fund groups can get away with charging higher charges for Global funds than the UK.
Maybe they need to pay for their flights?” In the next article in the series on rolling returns, FE Trustnet examines the IMA Global sector to find out which funds have been able to stay top quartile over successive rolling five-year periods back to 2004.
Our study focuses on the six rolling five-year periods between 30 November 2004 and 30 November 2014 to determine which global funds are first quartile in each period. Only funds with a 10-year track record were included in the study.
As the table below shows, the average global fund has underperformed the MSCI World - which is a natural index to compare against even though it’s not the benchmark of every sector member - in each of the rolling five years over the 10 years in question.
Performance of sector vs index
| Nov 04 to Nov 09 |
Nov 05 to Nov 10 |
Nov 06 to Nov 11 |
Nov 07 to Nov 12 |
Nov 08 to Nov 13 |
Nov 09 to Nov 14 |
|
|---|---|---|---|---|---|---|
| MSCI World | 31.22% | 19.29% | 13.27% | 17.14% | 90.63% | 76.24% |
| IMA Global average | 33.17% | 22.84% | 6.40% | 8.87% | 85.81% | 57.87% |
Source: FE Analytics
Of course, the extent of the performance varies. In the first rolling period between November 2004 and 2009, the sector’s just a couple of percentage points behind the 31.22 per cent rise in the index; between November 2006 and 2011 the average fund returned less than half the MSCI World’s 13.27 per cent; and between over the most recent period the gap between the sector and index is close to 20 percentage points.
On a cumulative basis, the average IMA Global fund has made 110.23 per cent over the 10 years examined in this study - underperforming the 131.25 per cent gain in the MSCI World. These figures take into account survivorship bias.
Despite these gloomy findings, a number of global funds have managed to deliver first-quartile returns in every one of the six rolling five-year periods of the past 10 years. Each one of the four below have also beaten the MSCI World on these same terms.
McInroy & Wood Smaller Companies stands out as providing the best total return of the consistent first-quartile funds, gaining 252.88 per cent and outpacing its closest rival on the list by just over 50 percentage points.
Performance of fund vs sector and index between Nov 2004 and Nov 2014
Source: FE Analytics
Run by FE Alpha Manager Tim Wood, the £59.4m fund invests in smaller companies and places on equal emphasis on generating capital growth and income.
It has 36 per cent in UK companies, while European and North American firms account for 29 per cent of the portfolio each.
Although smaller companies are seen as a more risky area of the market, the fund has fared better than the peer group and the MSCI World when it comes to a few key metrics.
Its annualised volatility over 10 years is 15.79 per cent, just below the index’s, while its maximum drawdown, which indicates how much an investor would have lost if they bought and sold units at the worst possible times, of 36.88 per cent is lower than both the sector and index.
McInroy & Wood Smaller Companies has an ongoing charges figure of 1.71 per cent and yields 1.59 per cent.
Another smaller companies fund has also made it onto the list of consistent outperformers - Invesco Perpetual Global Smaller Companies.
This £571.8m fund is managed on a team basis by Invesco Perpetual’s global smaller companies group, which includes chief investment officer Nick Mustoe and managers Paul Chesson and Dean Newman as members.
Over the 10 years examined it’s the second best performing fund on our list with a 201.16 per cent return.
It has been managed by the team since December 2010, having previously been under the charge of Bob Yerbury, and since then is second quartile with a 45.68 per cent gain.
The fund is more volatile than the sector but less than the MSCI World. However, it does have a higher maximum drawdown.
Invesco Perpetual Global Smaller Companies has a clean OCF of 0.95 per cent.
The other two funds that have been able to deliver first-quartile returns in all six rolling five-year periods both focus on the rise of the global consumer - Fidelity Global Consumer Industries and Morgan Stanley Global Brands.
Fidelity Global Consumer Industries is helmed by FE Alpha Manager Nicola Stafford and has returned 200.17 per cent during the 10 years covered here, doing so with lower volatility and maximum drawdown than both the MSCI World and the sector average.
Concentrating on stocks involved in the manufacture and distribution of goods to consumers, its largest position in is Procter & Gamble at 4.7 per cent followed by CVS Health and Nestle.
Almost half of the portfolio is in US stocks, followed by the UK at 9.8 per cent and France at 6.9 per cent.
Morgan Stanley Global Brands is run by FE Alpha Manager Peter Wright, Christian Derold and Bruno Paulson.
It is up 193.86 per cent over the 10 years we examined, again with less volatility and lower maximum drawdown than the sector and index.
Its largest holdings are British American Tobacco, Nestle, Unilever, Reckitt Benckiser and Sanofi, with 38.98 per cent in the US and 32.04 per cent in the UK.
Performance of funds vs sector and index between Nov 2004 and Nov 2014
Source: FE Analytics
Fidelity Global Consumer Industries has a OCF of 1.94 per cent, while Morgan Stanley Global Brands has a 1 per cent OCF.
In the next article of the rolling returns series, FE Trustnet will find out if any emerging market funds can keep delivering first quartile returns to their investors.
