Best global equity funds: Fund Awards 2016

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BEST LARGER GLOBAL GROWTH FUND

Fundsmith Equity

1-year return: 17%; 3-year return: 62%

Overseen by City veteran Terry Smith, Fundsmith Equity has been immensely popular since it launched in 2010. It holds £5.8 billion in assets under management, and is one of the most-bought funds each month on Money Observer's sister website Interactive Investor.

Investors have bought into Smith's simple but effective investment philosophy. Over three years to the end of March, the fund scores top marks in the Investment Association's global sector for performance and consistency.

The fund has returned 62 per cent over the period, comfortably ahead of the sector average of 20 per cent.

Smith picks a small selection of shares and sticks with them. He currently has just 27 shares, with 60 per cent in the US market. He likes to buy established firms with big brands, such as Pepsico and Microsoft.

Browse Money Observer's 2016 Fund Awards winners
Best UK equity funds
Best global equity funds
Best regional funds
Best mixed asset funds
Best absolute return funds
Best bond funds
Best property funds
Methodology

He notes the average company in his portfolio was founded in 1910, while the average market capitalisation is £58.6 billion.

Another quality Smith looks for in companies is a high return on capital. He also favours businesses with advantages that are difficult to replicate. He avoids banks because of their high debt.

Smith believes it is virtually impossible to predict which way stock markets will move, but that the strength of the companies the fund holds will allow them to continue to grow their intrinsic value.

'With regard to market timing, the performance record of the vast majority of active managers would suggest that there are far more who think they can play the investment and business/economic cycle successfully and outperform, despite owning stocks in poor-quality companies, than can actually do so,' he says.

Only a couple of holdings have been sold since the fund launched.

BEST SMALLER GLOBAL GROWTH FUND

JOHCM Global Opportunities

1-year return: 12%; 3-year return: 47%

Global funds have become increasingly popular in recent years as investors have sought to diversify their portfolios. For JOHCM Global Opportunities, which carries off our smaller fund winner's trophy in this category, capital preservation is also a priority.

Ben Leyland, who has managed the fund since launch in 2012, says this is the reason he does not follow any stock market index weightings, explaining: 'We don't believe that MSCI sector or country categories are a good way to manage absolute risk.'

fundsmith-equity-versus-johcm-global-opportunitiesHe looks for shares that offer the best growth potential with the minimum risk of loss. He describes his approach as 'quality-value' - finding shares in quality companies at the right price.

He believes this approach has enabled the fund's performance to be less volatile than its peers, allowing him to avoid the major losers when markets have gone down.

Looking back over the past three years, Leyland says: 'Our biggest successes have resulted from taking strong anti-consensus views about the growth prospects of a particular sector or region.

For example, both healthcare stocks in 2012 and European telecoms in 2013 were valued for structural decline, whereas we identified certain companies with strong growth prospects as a result of investing in their franchises over a multi-year period.'

Strong stock-picking has also helped. Leyland says: 'We have benefited from owning cash-generative companies reinvesting back into their businesses in order to grow.

'For example, Wolters Kluwer, Reed Elsevier, TJX Companies, Accenture, Equifax and ITC Holdings have all been good performers for us as the market has re-rated a growing earnings base.'

He sees significant headwinds to gaining absolute returns from equities over the next few years, however. 'We will maintain our investment disciplines - selling overvalued assets, avoiding leverage and structural risk, and only committing capital when the odds are stacked in our favour.'

HIGHLY COMMENDED LARGER GLOBAL GROWTH FUND

Ardevora Global Equity

1-year return: 4%; 3-year return: 51%

The managers of our highly commended fund, Ardevora Global Equity, take a somewhat unconventional approach to selecting shares for their funds.

For Jeremy Lang and William Pattisson, choosing the best shares is all about minimising risk rather than looking for maximum rewards. Their aim is to invest in safe growth companies. They assess risk by examining the attitudes of other people.

They are always seeking to take advantage of situations where they believe others in the market have got things wrong. This means watching the behaviour of other investors, financial analysts and company managers to find signs of bias.

The fund has a long/short ratio of 150/50, which means it can invest say £100 conventionally, sell £50 of overvalued stocks and use the proceeds to buy another £50 of stocks.

ardevora-global-equity-versus-t-rowe-price-global-equity

HIGHLY COMMENDED SMALLER GLOBAL GROWTH FUND

T Rowe Price Global Focused Growth Equity

1-year return: 1%; 3-year return: 42%

Our highly commended product in this category is T Rowe Price Global Focused Growth Equity, a Luxembourg-domiciled fund managed in the US by David J Eiswert since 2012.

Although it can invest in any size of company throughout the world, including emerging markets, the manager's aim is to keep it very much a best-ideas fund, with a relatively concentrated portfolio of between 60 and 80 holdings.

Eiswert has the advantage of being able to draw on T Rowe Price's global research network for local insights into companies and markets. He seeks to identify businesses with sustainable competitive advantages which are gaining market share and have shareholder-focused management teams.

Despite lower economic growth generally, he thinks there is enough growth in the world to allow him to outperform markets by making concentrated bets on these types of stocks.

Recently, the fund's highest exposure has been to technology, He sees the shift towards technology expanding in all regions of the world.

BEST GLOBAL EQUITY INCOME FUND

Fidelity Global Dividend

1-year return: 6%; 3-year return: 38%

The launch of trophy-winning fund Fidelity Global Dividend in January 2012 reflected the increasing demand for global equity income funds as investors seeking income started to recognise the need to diversify away from the UK. Dan Roberts, manager of the fund since inception, has not disappointed them.

Buy, hold or sell: Fidelity Global Dividend

Roberts describes his approach as 'unconstrained, dividend-based, total return, with an emphasis on capital preservation'.

When seeking out potential investments, there are five key investment characteristics he holds dear: simple, understandable business models; predictable, resilient return profiles; strong cash conversion and healthy balance sheets; transparent financial statements, and sensible capital allocation.

He relishes the fund's global mandate, explaining: 'It gives a much greater opportunity set to select from, both within sectors and across different industry groups.

'This helps enormously with regard to portfolio construction - in managing sector skews and stock concentration, but also in taking advantage of valuation opportunities and accessing sectors which may not be available if your mandate is country-specific.'

He adds: 'I have also managed to avoid the areas of the market which have suffered most over the past few years, most notably resources and financials.'

He has two main concerns about the future: 'The market has seen a material re-rating over the last few years and there is the potential for this tailwind to slow or even go into reverse. Alongside this, corporate profits look stretched.

'We look to three things to protect us against this backdrop: an emphasis on dividends; a valuation discipline, and a focus on businesses where profits look to be sustainable and resilient.'

fidelity-global-dividend-versus-artemis-global-income

HIGHLY COMMENDED GLOBAL EQUITY INCOME FUND

Artemis Global Income

1-year return: -3%; 3-year return: 32%

Artemis Global Income won this category in 2014 and 2015, but was edged into second place this year.

It is one of the best performers in its sector over three years to the end of March, returning 32 per cent, but was pipped at the post by Fidelity Global Dividend. The Fidelity fund returned slightly more while also coming out on top for consistency.

Manager Jacob de Tusch-Lec looks for companies with good cash flows that can grow and sustain their dividends over time. He scrutinises the quality of companies' dividend streams, and then takes a view on whether he likes the management team.

Europe excluding the UK is the biggest country weighting in the fund at 40 per cent, followed by the US, which makes up 35 per cent.

UK exposure is low at 8 per cent, so unlike some others in the sector this is a genuine global fund. Financials are the biggest sector bet, accounting for just under a third of the portfolio, which holds just shy of £3 billion in assets.

GLOBAL EMERGING MARKETS: BEST FUND

Templeton Emerging Markets Smaller Companies

1-year return: -3%; 3-year return: 19%

Emerging markets have had a tough time over the past three years, with share prices weighed down by collapsing commodity prices and slowing economic growth.

Over the three-year period to the end of March, a large number of funds that specialise in these high-risk regions have produced negative returns. The average fund in the Investment Association global emerging markets sector has lost 10 per cent.

Some funds, however, have managed to buck the trend, including Templeton Emerging Markets Smaller Companies, which takes home the title in this category for the second year running. The fund has returned 18 per cent over the three-year period, while coming out top for consistency, with the highest Sharpe ratio score.

Templeton is renowned for its emerging markets expertise, especially that of Mark Mobius, who runs this fund with Tom Wu and Dennis Lim. They are supported by over 50 analysts based in Franklin Templeton's 20 offices across the emerging markets world.

Mobius says smaller companies are under-researched, which gives stockpickers like him the opportunity to gain an edge over stock market indices. The top four country weightings are India (20 per cent), South Korea (13 per cent), Taiwan (8 per cent) and China (8 per cent).

In terms of sectors, consumer discretionary (26 per cent), information technology (16 per cent) and consumer staples (15 per cent) are the three biggest allocations.

Mobius remains positive on the investment case for emerging markets, though he cautions that it will not be a smooth ride for investors.

templeton-versus-hermes-emerging-markets-funds

HIGHLY COMMENDED FUND

Hermes Global Emerging Markets

1-year return: -7%; 3-year return: 0%

Successful investment in emerging markets has become much more challenging in recent years since the slowdown in the global economy.

The approach used since 2011 by Gary Greenberg, the manager of the Hermes Global Emerging Markets fund, is to take a long-term view to try and identify the winners from structural changes in emerging economies.

He aims to select high-quality companies with strong capital discipline and highly competent managements that he believes will weather the storms and reward investors over the long term.

As well as looking for efficient and sustainable companies, Greenberg also takes into account the economic conditions in which companies operate.

During the investment process, the universe of potential investments is filtered down and individual companies are researched via extensive company meetings and analysis. The final portfolio consists of 50 to 75 companies from across the size spectrum.


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