Investors have widened their equity options by turning to global funds as market conditions grow steadily worse. M&G’s Global Basics has proved the most popular among AFI panellists.
Global funds are growing in popularity this year as investors seek an easy way to diversify their equity exposure. According to the latest monthly statistics from the Investment Management Association (IMA), funds in the Global Growth sector saw total net retail inflows of £72m in July. Only the recently launched Absolute Return sector fared better, with a net gain of £232m.
The inflow even trumped the £69m achieved by Global Growth funds in July 2007, despite a significant worsening of investment conditions over the past 12 months. The sector is also well-represented in the Adviser Fund Index (AFI) indices. A total of 11 funds feature across the three benchmarks, with 18, 15 and 17 selections in the Aggressive, Balanced and Cautious indices respectively.
At the head of the popularity table is M&G Global Basics, which was chosen 14 times during the May rebalancing. The portfolio received seven selections in the Aggressive index – more than any other fund. Darius McDermott, managing director of Chelsea Financial Services, says he substituted the fund for JP Morgan Natural Resources.
“It is a medium-term play and we wanted a more diversified commodity exposure,” adds McDermott. According to M&G, its £3.4 billion fund invests in companies “that provide products and services which are rarely out of demand,” including those involved in manufacturing and food production. This gives it a broader remit than the JP Morgan fund, which focuses on the production and marketing of commodities.
Although M&G Global Basics has had a tricky three months – falling by about 17% according to Financial Express – it has proved resilient since the start of the credit crunch. For the 12 months ending September 17 the portfolio declined by just 2%, compared with a sector average fall of 12%.
Hilary Coghill, investment director at City Asset Management, uses the fund in her AFI portfolios but does not consider it a “core global growth” product.
She also holds Odey Opus and Newton Global Higher Income. The £180m Odey fund is run by the firm’s founder, Crispin Odey. Coghill says the fund was launched in 2001 during the dotcom crash, but was successful in preserving capital. “We have held the fund for four or five years,” she says. “It has a good track record and Crispin Odey takes strong views.
Over the long term he was proved right.” The fund is taking “big bets” on RSA – an insurance group – and BSkyB, she adds.
Newton Global Higher Income, which will reach its third anniversary in November, has also performed relatively well over the past 12 months, falling by less than 6%. Coghill says she uses the fund as an alternative to the UK Equity Income sector, to minimise her exposure to sterling. The fund’s largest allocations were to continental Europe (22.5%), Asia Pacific (20.3%) and North America (19.3%) at the end of August.
While McDermott generally prefers single-country funds, Chelsea Financial Services uses Rathbone Global Opportunities for its self-invested personal pension (Sipp) product. The £70m fund is run by James Thomson with a flexible, high-conviction style. Long-term performance figures compare favourably with the sector average, but the fund has fallen by over 20% in the past three months. McDermott says he may consider adding it to his AFI selection during the November rebalancing.
McDermott’s final pick from the Global Growth sector is Robin Geffen’s Neptune Global Equity fund, which features across all three AFI benchmarks. The £770m portfolio was chosen by single panellists in the Aggressive and Cautious indices and by two advisers in the Balanced index. Like the Rathbone fund, Geffen’s longer-term numbers are strong, but the portfolio has fallen by more than the sector average over the past 12, six and three months.
Of the Global Growth funds selected for the AFI in May, the M&G, Newton and Odey portfolios top the one-year performance table. Hardest hit was Jupiter’s Fund of Investment Trusts, with a decline of almost 20%. On a six-month basis, Allianz RCM Global EcoTrends is the best performer, with a return of 2%. The fund joined the AFI at the last rebalancing, after it was selected a total of four times.
The Adviser Fund Index series
The Adviser Fund Index series comprises an Aggressive, Balanced and Cautious index each tracking the performance of portfolio recommendations from a panel of 18 investment advisers. For each risk profile, all panellists specify a weighted portfolio of up to 10 funds from the authorised UK unit trust and Oeic universe that, when aggregated, define the constituents and weightings of the three AFIs (see www.fundstrategy.co.uk/adviser_fund_index.html).