How top-performing global funds and trusts are different to each other
Funds and investment trusts that put money to work outside the UK are popular with investors because they offer diversification away from the domestic market at a stroke.
Nevertheless, investors need to familiarise themselves with the different underlying assets of global funds as there are significant variations in terms of investment styles, underlying assets and levels of risk, even among the strongest performers.
GLOBAL STAR TURNS
Shares has crunched the data using to highlight the best performing global funds and trusts of the past 10 years, a sufficiently long timeframe to assess consistency. Our search looked at products with more than £1.5 billion in assets. As you’ll see, the approaches and underlying assets of the top performers are markedly different, confirming there is more than one way to deliver positive returns to shareholders from a basket of global equities.
The best performer is Scottish Mortgage (SMT), Baillie Gifford’s flagship investment trust famed for backing disruptive growth businesses, which has generated a 10-year total return of 487%, though it is down 44% over the past year due to the sell-off in growth names triggered by inflation and expectations of rising interest rates.
The second best performer of the past decade is Fundsmith Equity (B41YBW7), the Terry Smith-steered global fund which has returned 349%, followed by BMO Responsible Global Equity (3314504) with a 277% return.
DARING TO BE DIFFERENT
Considering the stiff headwinds facing global equity funds and particularly those with a focus on growth, it is hardly surprising that shares in Scottish Mortgage have suffered of late.
A market rotation from growth to value has negatively impacted the trust, which provides investors with a way of accessing interesting growth businesses and has a focus on tech companies, disruptors and positions in out of favour Chinese domiciled companies.
The April factsheet reveals a high active share of 94%, meaning the fund is very different from the benchmark, with the top 10 holdings including the likes of Tesla (TSLA:NASDAQ), Tencent (HKG:0700), Amazon (AMZN:NASDAQ), Alibaba (BABA:NYSE) and Moderna (MRNA:NASDAQ).
While the trust’s portfolio is well-diversified across listed investments, risk (and potentially reward) is increased through Scottish Mortgage’s investments in unquoted companies.
DIVERSIFICATION & CONTRARIAN VALUE
Launched back in 1868, F&C Investment Trust (FCIT) has delivered its strong long-run returns through a very different approach to Scottish Mortgage. This multi-manager trust runs an ultra-diversified portfolio which gives investors exposure to most of the world markets; the fund is invested in more than 400 companies in 35 countries.
F&C Investment Trust’s three biggest positions are Microsoft (MSFT:NASDAQ), Alphabet (GOOG:NASDAQ) and Apple (AAPL:NASDAQ), though they speak for just 2.5%, 2% and 1.9% of the portfolio respectively.
Other holdings span industries as diverse as electric vehicles in the form of Tesla, discount retail through Dollar General (DG:NYSE), social media and the metaverse through Meta (META:NASDAQ) and pharmaceuticals thanks to its exposure to Merck (MRK:NYSE).
Fellow multi-manager vehicle Alliance Trust (ATST) is also highly diversified, offering exposure to 189 stocks in one product. Its investment manager, Willis Towers Watson, has appointed a number of stock pickers with different styles, who each ignore the benchmark and only buy a small number of stocks in which they have strong conviction, which gives the increased potential for outperformance versus the benchmark combined with manager diversification, which should reduce risk and volatility.
A very different basket of underlying assets is on offer at Fidelity Global Special Situations (B8HT715). A diversified fund managed by Jeremy Podger and Jamie Harvey, Fidelity Global Special Situations strikes a stylistic balance between growth and value so the portfolio hopefully delivers returns for investors even in a low growth environment.
Fidelity Global Special Situations’ good long-term performance reflects a valuation-focused approach to identify companies with significant potential for share price appreciation.
This can be because the valuation is too low or because the market fails to recognise the company’s future growth prospects, or both.
The portfolio is divided into three categories of ‘special situations’: corporate change, exceptional value and unique businesses. Corporate change candidates offer the potential for a fundamental shift in value, with catalysts linked to near-term restructuring, merger and acquisitions or spin-off activity.
Exceptional value companies that deliver earnings growth in excess of market expectations can see a dramatic re-rating, whereas unique businesses might be firms with a dominant industry position, strong growth, cash flow and pricing power.
The £3.3 billion fund had 119 long positions and 15 short positions as at the end of April. The US dominated the portfolio at 62% of the long exposure, with top net longs including tech titans Microsoft and Amazon as well as healthcare and insurance firm UnitedHealth (UNH:NYSE) and electronic payments group Mastercard (MA:NYSE).
CONCENTRATING ON QUALITY
One of the most popular investments among UK retail investors, Fundsmith Equity’s short-term performance is uncharacteristically disappointing. With its quality growth style of investing temporarily out of favour, the fund has slipped into negative total return territory over six month and one year periods, yet its long-term performance record under pugnacious stock picker Terry Smith is nothing less than terrific.
In stark contrast to the likes of F&C Investment Trust and Alliance Trust, Fundsmith is a highly concentrated portfolio of just 28 equity holdings as of the end of May, with big sector biases towards the consumer staples, technology and healthcare sectors where Smith can find long-established companies that generate high returns on capital.
High conviction investor Smith is sticking to his tried-and-tested formula of investing in a just a small number of top quality, resilient, global growth companies that he believes are good value and which he intends to hold for a long time.
Rathbone Global Opportunities (B7FQLN1), is a stock picking fund with 60 carefully-selected stocks at last count. Names passing muster with manager James Thomson span big box retailer Costco (COST:NASDAQ), chipmaker Nvidia (NVDA:NASDAQ) and accounting software company Intuit (INTU:NASDAQ).
Unlike global fund manager peers, Thomson avoids emerging markets, preferring to scour developed countries for innovative and scalable businesses that are growing fast and shaking up their industries.
‘They must be easy to understand, different to their competitors, durable to change and difficult to imitate. Companies must have a plan to grow rapidly without running out of money or overstretching their resources,’ says Rathbone.
‘Our speciality is spotting these businesses before they are household names. We buy companies of all sizes, but our sweet spot is mid-sized growth companies in developed markets.’