Five global funds that avoid style bias

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The Investment Association global sector is a very mixed bag, with some of the industry's biggest and best-known names, such as Fundsmith and Lindsell Train, amongst its 218 funds.

Many of the sector's most successful funds over the past few years have such quality growth stock biases, but since September last year the market has been favouring value stocks, such as industrials, materials, financials and energy, which have enjoyed a strong rally.

Old Mutual Global Equity is a strong fund that makes it its business to try to avoid style bias. 'It is very important to avoid the big bear traps of active management,' says Ian Heslop, head of global equities at Old Mutual Global Investors.

'This is why active managers as a whole do not beat the indices. Our findings show they tend to concentrate into a single style.

GEOPOLITICAL PREDICTIONS

'Many global funds have a value or growth style bias, but we run a mix of styles that change through time, because no single strategy works in all weathers. For example, we do not use screens to whittle down stocks, as this will lead to bias.'

Old Mutual Global Equity's geographical asset allocation closely mirrors its MSCI World benchmark, which means just 5 per cent is in the UK and 60 per cent in the US, while many competitors have been ramping up their allocations to these soaring markets.

'We do not try to predict geopolitical events or forecast how the market will respond to them, particularly as this requires making two predictions - the event and its impact,' Heslop adds.

In fact, he says, the initial impetus for the recent market-wide rotation to buying value began back in June 2016, when investors first started moving away from the so-called bond proxies and dividend equities and into riskier value stocks as fear of deflation made way for a pick-up in inflation.

CONTRARIAN APPROACH

For a contrarian approach, Invesco Perpetual Global Opportunities, a concentrated portfolio of just 37 stocks run by Stephen Anness, has been underweight the US at 35 per cent and overweight the UK and Europe, with a 22 per cent holding in the UK.

Anness believes the UK is less expensive than the US, and that a number of US companies in the broader mid-cap industrial space have built up excessive debt on their balance sheets through buybacks, while their cash generation is unattractive.

Anness buys shares he believes are cheap relative to intrinsic value: he has large holdings in financials such as JPMorgan and Citigroup, and in businesses that have little to do with a particular region's economy, such as Airbus in France and Rolls-Royce in the UK.

Unlike many managers, he has allocated zero to Japan, as he remains unconvinced about the focus on shareholder value.

FLYING UNDER THE RADAR

McInroy & Wood Smaller Companies, which contains just 50 stocks, does not benchmark at all.

The team 'really likes companies that fly under the radar', investment manager Emily Ayles says, citing XP Power, a UK company with headquarters in Singapore that makes batteries and power supplies for critical kit such as life support systems.

The global sector is also home to funds with relatively unusual styles. For example, Ardevora Global Equity, led by Jeremy Lang and Bill Patterson, invests in an unconstrained way, with some 150-200 holdings, and no single holding accounting for more than 1 per cent of the portfolio.

Lang looks for stocks that have been wrongly valued by the market, based on his interest in behavioural finance. For example, he believes that some companies have been oversold owing to an historical reputation that no longer applies.

The fund can 'short' certain shares, and uses this to target aggressively run businesses or those where the management is 'in denial'.

FUND IN THE SPOTLIGHT

A little-known fund in the global equity sector is MGTS Greystone Global Growth, part of the four-strong Margetts Greystone fund-of-funds stable run by James Menzies.

The fund has beaten the index in nine of the past 10 years. At just £80 million, it should be able to react quickly to 2017's volatile markets.

'With so many geopolitical issues to guide our clients' portfolios through, we do believe that we can be more nimble as a function of our size.

'However, we have learned not to position with regard to binary outcomes. Certain underlying managers have a value focus and others a quality growth focus. We aim to have a pragmatic mix.'

Last year the manager diversified the funds with additional holdings, so that the largest now is 7.4 per cent in Prusik Asian Equity Income. The fund also has a 3 per cent holding in long/short fund City Financial Absolute Equity.


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