The £13.3bn Fundsmith Equity fund has topped the IA Global sector for a second year running in FE Trustnet’s annual study of risk and return metrics, although some new funds have broken through into the top 10. 
In this annual series, we review the Investment Association sectors on 10 different metrics to determine how their members have stood relative to each other over the past five calendar years. The metrics we examine are cumulative five-year returns up to the end of 2017, the annual returns of 2017, 2016 and 2015, annualised volatility, alpha generation, Sharpe ratio, maximum drawdown and upside and downside capture relative to the sector average.
The average decile ranking for these 10 metrics is then worked out for each fund in the sector to find those which were most consistently at the very top of their peer group for a wide range of measures over the recent past.
When looking at the IA Global sector, the five FE Crown-rated Fundsmith Equity fund came in first place after achieving an average decile ranking of 1.8. Last year, the fund – which is headed up by FE Alpha Manager Terry Smith (pictured) and is the largest in the peer group – was also at the top of the table after scoring 1.5.
Performance of fund vs sector and index over five years to the end of 2017
Source: FE Analytics
The chart above shows that the fund has made 179.50 per cent over the five years examined in this research, ranking it in the top decile of the peer group and beating the MSCI World index by a wide margin. Fundsmith Equity is also in the sector’s first decile for returns in 2017 and 2015, alpha generation, maximum drawdown, Sharpe ratio, upside capture and downside capture.
Smith’s investment approach sees him build a concentrated portfolio of global companies that operate in basic industries, serve repeatable needs and generate high levels of cash. This leads him to areas such as technology, consumer staples and healthcare, while he avoids economically sensitive industries such as airlines, banks and real estate.
The FE Invest team, which has the fund on its Approved List, said: “The areas the fund has invested in have been in high demand since the crisis, which is why the fund has returned so much in absolute terms. In relative terms, though, it has still done a good job of generating higher returns and has proven to be a superior solution to funds with a similar investment philosophy.”
GS Global CORE Equity Portfolio comes in second place – the position it held last year – with an average decile ranking of 1.9. The $4.6bn fund is in the first decile for its five-year total returns, alpha, maximum drawdown, Sharpe ratio and downside capture.
Managed by Goldman Sachs Asset Management’s quantitative strategy team, it is designed to offer core global equity exposure through a portfolio that has the same style, sector, risk and capitalisation characteristics as its MSCI World benchmark; outperformance is aimed through underlying stock and country selection.
This is another fund that is a member of the FE Invest Approved List. Analysts in the FE Invest team like GS Global CORE Equity Portfolio’s “very distinctive approach” to global equities, its use of non-traditional sets of data and “robust” risk management approach.
Source: FE Analytics
In third place is a new entrant to the list: Seilern Stryx World Growth, which is managed by Seilern Investment Management chief investment officer Raphael Pitoun. The £334.9m fund, which holds five FE Crowns, scored an average decile ranking of 2 in this research.
The fund aims for “outstanding absolute returns with moderate risk by investing in OECD country companies of highest quality with proven track records, sound financials and predictability of future earnings growth”, leading it to ‘safer’ areas of the market. This has translated into top decile numbers for five-year returns, performance in 2015, alpha generation, maximum drawdown, Sharpe ratio and downside capture.
Other IA Global funds that have broken into the top 10 in this year’s average decile ranking research are Standard Life Investments Global Smaller Companies and Sanlam Private Wealth Global High Quality.
Turning to the other end of the table and it’s Guinness Alternative Energy which sits at the very bottom with an average decile ranking of 9.6. The $11.5m fund sits in the tenth decile for five-year returns, performance in 2016 and 2015, alpha, volatility, maximum drawdown, Sharpe ratio and upside capture.
Recent years have been very challenging ones for energy and basic materials funds with First State Global Resources, Schroder ISF Global Energy, MFS Meridian Global Energy and Guinness Global Energy also appearing towards the bottom of the list in this year’s research.
Performance of fund vs sector over five years to the end of 2017
Source: FE Analytics
It’s not only energy funds that have lagged their peers across multiple metrics, however.
Other funds walking away from the past five years with some of the sector’s worst average decile rankings include Carmignac Investissement, Dominion Global Trends Luxury Consumer, Old Mutual Voyager Global Dynamic Equity, Aberdeen Global World Equity, Fidelity Global Industrials and Morgan Stanley Emerging Leaders Equity.