With a global fund, the world is your oyster

Kathleen Brooks
TRADITIONALLY, British institutional investors have been interested mostly in regional funds, leveraging local knowledge to bring returns. But there are signs that global funds – which cover all sectors and regions – are growing in popularity. Data from Lipper, the fund management research firm, shows that 16 and 20 global equity funds available to UK investors were launched in 2007 and 2008 respectively, compared to an average of seven a year over the past 20 years. Three were launched last year against a difficult market backdrop.

Currently global funds represent fewer than 10 per cent of all UK registered investment funds, according to data provided by Morningstar, the independent fund research firm, but they have done well. Morningstar data shows that in the past five years these funds have returned more than 50 per cent. Although their average returns were only 5 per cent between April 2007 and April 2010, they grew by nearly 40 per cent in the past year.

Partly, these funds are a recognition of how global the modern economy has become. “A company can be listed in one country but derive its profits from somewhere else, which is why a global strategy makes sense,” says Virginie Maisonneuve, Schroders’ head of global equities, and co-head of Schroders Global Alpha Plus fund, which will launch next month.

The advantages of a global fund are twofold. On the one hand, the global economy is ever more complicated, and it can be tricky finding specialists who understand all the peculiarities of particular regions. And local knowledge is increasingly important to investors. When Fidelty’s stellar fund manger Anthony Bolton recently launched a China Special Situations Fund, some were wary of investing on the grounds that he didn’t speak Chinese.

On the other hand, another attraction for institutional investors is that with a global fund you are allowing the fund manager to pick stock, without being restricted by your own views about which sectors or regions are poised for growth. “If you are paying a fund manager to do a job, then let him do it rather than make those decisions yourself,” says Alistair Wilson, head of institutional business at Neptune.

So how do these funds work? The general technique is that fund managers whittle down 40,000 stocks or so to perhaps just 50. They will do this by looking at sectors where there are opportunities, and then identifying winners, while ignoring the portfolio’s regional allocation.

Among the global equity funds that have performed well in the past 12 months are UBS Global Optimal fund (up 42 per cent) Investec Global Dynamic fund (up 41 per cent), Fidelity Global Special Situations fund (up 44 per cent) and Axa Framlington Global opportunities fund (up 59 per cent).

Rich pickings are there, for those who are willing to take a broad enough view, and trust their fund manager.