Waiting Room: Husselbee’s top picks in global equity

Waiting Room turns its attention to global equity, with both the growth and income sectors considered. There is plenty of choice here, so much so that extra seating is required with more than 30 funds matching the criteria for review.

In such broad sectors, it is to be expected that objectives, styles and approaches will vary enormously between the funds available.

Many discretionary managers will avoid or limit their exposure to global funds, preferring to determine their own asset class mix in terms of country or region. However, these sectors also provide specialist funds and with interest rates around the world remaining at historic lows equity income has become a popular choice.

With that in mind, it seems surprising that the growth funds outnumber income options in the Waiting Room. Among these new funds, the search for yield is satisfied both from alternative sources such as infrastructure as well as the extension of stockpicking into a global universe. The new growth offerings meanwhile are mainly concentrated portfolios, with some also featuring the emergence of factor-based investing, more commonly referred to as smart beta.

The extension of a brand is a common theme in other industries, particularly those that are consumer facing. This is no different in asset management and there have been a number of fund groups willing to extend their expertise across other sectors.

Troy Asset Management has built a reputation for unconstrained investing, with a focus on absolute return rather than being tied down to industry benchmarks. Its Trojan Income fund, investing mainly in UK equities, has been hugely popular among buyers and is one of the larger funds in the IA UK Equity Income sector.

Trojan Global Income fund launched at the beginning of November last year with James Harries as the lead manager. Harries is no stranger to managing global equity income funds having established Newton Global Income in 2005. His focus is on quality at the right price, with a concentrated portfolio of 38 stocks held for long-term appreciation. While it is too early to measure performance, the £73m fund size suggests there are a number of early adopters.

Over the short to medium term, investment style – be that large cap versus small or value versus growth – is a key determinant of fund returns. This was very noticeable last year as investors saw a move away from quality to value in the latter months. While some groups look to maintain a consistent style across all their funds, Schroders has become a company prepared to house a variety of approaches. The Equity Value team consists of seven professionals managing eight funds across UK, European and Global equities. They pursue an approach that is both contrarian and long term in seeking outperformance.

The Schroder Global Recovery fund is one of four value orientated equity mandates run by the team. Those invested in their UK income fund will be familiar with Kevin Murphy and Nick Kirrage, who, along with Andrew Lyddon, are the named managers. Murphy and Kirrage have a large following, and have described their value investment style as “the exploitation of investor emotion”. Data shows the fund managers’ long-term outperformance vs their peers, which is particularly impressive considering that the “value” investment style has oft been out of favour while they’ve been running money. Lyddon doesn’t have quite as long a track record, but has still impressed in the five years he’s been running money. The fund launched in October 2015, with the current factsheet stating a historic yield of 1.23 per cent and £103.1m total size as at 28 February. In terms of numbers, the fund has behaved as expected and fully captured the value bounce in the second half of last year. The fund favours US equities, which make up nearly a third of the portfolio, but also has a substantial slug – 20 per cent – in UK companies including banks Royal Bank of Scotland and HSBC.

Many of the global funds in IA sectors are managed from the UK, but there are some managed overseas that can perhaps offer a different perspective. One such fund is the Brown Advisory Global Leaders fund, run by a US-based investment house established 25 years ago in Baltimore. This is bottom-up strategy led by Mick Dillon, with a concentrated portfolio of global high-quality franchises – Visa, Estee Lauder and Microsoft currently feature in the top ten holdings.

The fund launched in May 2015 and the latest factsheet shows returns have exceeded the Russell Global Large Cap Index since inception. The portfolio is invested 49.6 per cent in North America, 22.4 per cent in Europe, 23 per cent in the rest of the world and 4.9 per cent in cash. The fund’s characteristics show a portfolio with a large-cap growth tilt versus the index with a significant overweight to the IT sector and zero weightings in energy, real estate, telecoms and utilities.

Over the past year, this feature has proven that despite the thousands of funds already available on- and offshore, the industry still has appetite for more. Increasing choice for fund buyers is to be welcomed and surely leads to more efficient portfolios.

John Husselbee is head of multi asset at Liontrust