Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
The easy way to invest in global markets
Knowing where to start when looking at global equity funds can be a complex task given there are over a thousand of them, investing in all kinds of sectors, countries and market caps.
One way to begin investing in global equity is via tracker funds, which follow all the companies in an index and include some of the world’s biggest names including Apple, Amazon, Facebook and Microsoft.
Using AJ Bell’s favourite funds list, we’ve found two funds which may suit those looking to access global markets for the first time, the Fidelity Index World Fund (BJS8SJ3) and the Lyxor Core MSCI World (LCWL) exchange-traded fund (ETF).
Both products follow the MSCI World Index, a basket of stocks that contains 1,635 mid and large cap companies across 23 developed market countries. Over 62% of such companies are in the US, with others in countries like Japan, the UK, France, Canada and China.
A CHEAPER OPTION
Compared to active funds they are considerably cheaper, with both having a fund manager’s charge of 0.12% a year. For active funds, depending on the fund, the figure can vary from around 0.6% to more than 1%.
Both the Fidelity tracker fund and the Lyxor ETF have performed broadly in line with the benchmark, the Fidelity fund returning 15.08% annualised over three years, while the Lyxor ETF in the year-to-date – the only figure available since its inception in February last year – has returned 15.69%.
The comparable figures for the benchmark are 14.9% and 15.89% respectively.
However, while the returns are decent compared to some other asset classes, particularly in global equities active funds have tended to outperform the benchmark in recent years.
Two of the most popular active funds in global equity are Fundsmith Equity (B41YBW7) and Lindsell Train Global Equity (B3NS4D2), both of which use the MSCI World Index as a benchmark. The funds have an annualised three-year return of 20.63% and 24.11%, and have a fund manager’s charge of 0.95% and 0.71%.
But that’s not to say all active funds have had such a good time in recent years. Newton Global Income (B7S9KM9) and Schroder Global Recovery (BYRJXP3), two other well-known funds popular with investors, have both performed below the benchmark with an annualised three-year return of 13.32% and 12.58%, and charges of 0.8% and 0.87%, respectively.
Though it’s worth noting that the type of stocks both funds invest in – income stocks and value stocks – haven’t done as well in the short term.
Value stocks in particular have underperformed in the last five years, as measures from central banks to boost the money supply, such as quantitative easing (QE), in countries like the US has meant the more fashionable companies, like tech firms, have seen a lot of this capital invested in them.
But once the current QE cycle ends and such companies start growing less, in theory value stocks should start making a comeback. It is uncertain however when exactly that time will come.
So the Fidelity Index World and Lyxor Core MSCI World ETF would therefore seem to represent a good middle ground given their decent returns and low cost. But which one is the better option?
WHICH ONE TO CHOOSE?
In truth both products would be suitable for most investors. Choosing between them may simply come down to a matter of preference.
As a mutual fund as opposed to an ETF, the Fidelity fund is available to trade only once a day and is bought and sold at its net asset value.
An ETF on the other hand is traded throughout the day, like a stock, potentially offering a greater level of transparency.