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Global sector

Global sector

Funds in this sector tend to focus on capital growth and can differ markedly from each other in terms of exposure to sectors, countries or regions.

Richard Troue - Head of Investment Analysis
27 March 2018

A fund investing in the UK is often the first port of call for many UK investors. Yet the number of funds investing overseas has increased over the years and could provide important diversification as part of a wider portfolio.

Funds in this sector can differ markedly from each other. Some managers have more flexibility than others in terms of how many stocks they can hold or how much exposure they have to different sectors, countries, or regions. Some could have more exposure to higher-risk emerging markets or smaller companies, for example. Funds should therefore be judged on their individual merits to ensure they are right for your circumstances.

Our view

We have long held the view that a well-balanced portfolio will provide the most consistent returns over the long term. Working out which market or currency will perform best in any given year is no easy task. Keeping a foothold in most areas with a geographically-diverse fund eliminates the need to guess and reduces market-specific risk.

Within our Wealth 150 we have included global funds with different investment strategies and areas of focus, which we believe will deliver good returns for investors over the long term. Different investment styles will come in and out of favour in the shorter term and we would therefore suggest investing in a selection of funds using different approaches. A number of funds in this sector are covered in more detail in the ‘fund reviews’ tab.

Alternatively, investors seeking a geographically diverse and well-balanced portfolio could consider the HL Multi-Manager Special Situations Fund. It’s a core global growth fund that benefits from our in-house research. We feel the additional costs associated with running a multi-manager fund are justified by the benefits of this approach.

The HL Multi-Manager Special Situations Fund has exposure to higher-risk smaller companies and emerging markets. The HL Multi-Manager funds are managed by our sister company HL Fund Managers.

HL Multi-Manager Special Situations Key Investor Information

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Global stock markets continued to move higher over the past year. Economic growth has been robust across the world, while inflation and interest rates remain relatively low. So far, stock markets have shaken off Brexit fears, protectionism, populism, and the unwinding of quantitative easing, but these risks could rear their head again over the course of the year and cause volatility, just as they did at the beginning of 2018.

Perhaps unsurprisingly, the UK was one of the weaker global stock markets, hampered in part by political and economic uncertainty as investors try to unpick the consequences of Jeremy Corbyn potentially entering 10 Downing Street, and our exit from the EU. Higher-risk Asian and emerging markets fared well, benefiting from a broad pick up in global economic growth and China being on a seemingly sure footing.

Global stock markets - performance over 1 year (GBP)

Past performance is not a guide to future returns. Source: Lipper IM to 28/02/18.

Against this backdrop fund managers in the global sector performed well, with the average fund delivering a higher return than the broad global stock market. To some extent this reflects the fact the US is a huge part of the global stock market, but many fund managers will not be fully exposed. They therefore benefit when the US market lags global peers as it did last year (with the exception of the UK).

Global income fund managers experienced different fortunes. They struggled as many investors shunned high-yielding companies in favour of those with more exciting growth prospects.

Sector performance over 1 year (GBP)

Past performance is not a guide to future returns. Source: Lipper IM to 28/02/18.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Five year performance

  • IA Global sector

    +71.1%

Source: Lipper IM to 28/02/18. Please remember past performance is not a guide to future returns.

Fund reviews

We undertake a comprehensive review of every sector. Here we provide comments on a selection of funds of interest following our most recent Global sector review. They are provided for your interest but are not a guide to how you should invest. If you are unsure of the suitability of an investment for your circumstances seek personal advice. Comments are correct as at end February 2018. Remember all investments can fall as well as rise in value so investors could get back less than they invest. Past performance is not a guide to the future.

There is a tiered charge to hold funds with HL. It is a maximum of 0.45% p.a. - view our charges.

Wealth 150 Fund reviews

Other funds in this sector

Here we look at some other funds of interest following our most recent sector reviews. Please note the review period may be over a short time period and past performance is not a guide to future returns.

To view a full list of our favourite funds within the sector, visit the Wealth 150

Source for performance figures: Financial Express

The managers invest in a small selection of businesses they believe have wonderful brands, franchises, and unique market positions.

The fund has performed well over the past year and the focus on businesses able to reliably grow their sales year in year out continues to pay off. Some of the fund’s larger investments, including Unilever and Diageo, have been weaker in recent months as investors have worried about their ability to sustain profits if interest rates and inflation rise. The managers believe these concerns are misplaced and the pricing power these companies enjoy – their ability to increase prices without seeing a drop in demand – will continue to serve them well.

As this is an offshore fund you are not normally entitled to compensation through the UK Financial Services Compensation Scheme. The fund currently has a holding in Hargreaves Lansdown plc. Charges can be taken from capital which can increase the yield but reduces the potential for capital growth. This is a concentrated portfolio, so each investment can contribute significantly to performance, but it is higher risk. The manager also has the flexibility to invest in higher-risk smaller companies.

The team that manages this fund aims to identify the themes set to shape the investment landscape and the companies best-placed to benefit.

The managers maintain a cautious view of the world. They believe that unprecedented amounts of Quantitative Easing has helped to push the share prices and valuations of many companies to unsustainable levels. In their view, dividends, which are compounded over time, will be the largest driver of stock market returns in the coming years. They therefore remain focused on investing in companies that offer above-average yields; are less sensitive to fluctuations in the economic cycle; and can take market share from competitors. They also favour businesses that might not race ahead in a rapidly-rising market, but could provide some resilience in weaker market conditions.

Charges can be taken from capital which can increase the yield but reduces the potential for capital growth. This is a concentrated portfolio, so each investment can contribute significantly to performance, but it is higher risk. The manager also has the flexibility to invest in smaller companies and emerging markets, both of which add risk.

James Thomson, the fund’s manager, looks for companies with strong growth prospects, but which have fallen off the radar of most investors.

Align Technology was one of the fund’s best performing companies in 2017. It makes clear dental aligners (used for straightening teeth) and recently opened its first store in San Francisco. This enables customers to have their teeth straightened without visiting the dentist, and could boost the company’s growth prospects.

Overall, James Thomson has positioned the fund with a focus on companies he believes capable of offering stable and dependable growth. He places particular emphasis on companies that provide essential products and services such as food, beverages, tobacco and healthcare, in addition to economically-sensitive businesses that play into powerful growth trends, such as technology-focused companies.

This is a concentrated portfolio, so each investment can contribute significantly to performance, but it is higher risk. The manager also has the flexibility to invest in smaller companies and emerging markets, both of which add risk.

We like the emphasis on innovative businesses with relatively new products or services and a competitive position they can defend.

Alan Rowsell’s view on the health of the global economy is primarily driven by the information he receives from the companies he invests in. As the majority of his businesses are generally positive, and have been reporting results ahead of market expectations, the manager is optimistic in his outlook.

The fund has performed strongly over the past year. Sunny Optical, which produces camera lenses for smart phones and vehicles, has been one of the fund’s strongest performing investments. Fever Tree, the maker of premium tonic water, also performed well.

This is a concentrated portfolio, so each investment can contribute significantly to performance, but it is higher risk. The manager also has the flexibility to invest in smaller companies and emerging markets, both of which add risk.

Jeremy Podger looks for unique businesses, those changing for the better, and those other investors are undervaluing.

The manager views Nvidia as a unique business. It’s dominant in the field of graphics chips (for computer gaming), but has growth potential in the mobile, super-computer, automotive and artificial intelligence markets. It has good cash flows and a technology that’s difficult for competitors to replicate.

Royal Dutch Shell on the other hand is a company the manager sees going through positive change. It has made several acquisitions and is aiming to cut costs. He believe this could lead to significantly improved cash generation.

Finally, he sees Citigroup, the US bank, as significantly undervalued. It has done a lot to turn itself around in recent years and strengthen its financial position. He believes many investors have yet to appreciate its future potential.

The manager has the flexibility to invest in emerging markets and use derivatives, both of which add risk.

Terry Smith aims to find a small number of high-quality, resilient businesses, and invest in them for the long term.

The fund performed well over the past year and delivered a higher return than the broad global stock market. Recent contributors to performance have included Microsoft, Estée Lauder, and Visa. In addition, the manager recently sold Dr Pepper Snapple following a bid from Keurig Green Mountain, and initiated a position in Facebook.

While Terry Smith is building a strong long-term record we continue to favour other fund managers with longer tracks records and funds available at more attractive prices.

This is a concentrated portfolio, so each investment can contribute significantly to performance, but it is higher risk.

Jacob De Tuche Lec looks at the world differently to many global income fund managers. He aims to avoid the more traditional income stocks and find opportunities off the beaten track. We think this is a good thing.

The fund’s performance has been lacklustre relative to the global stock market recently, partly because investors have continued to favour high-growth businesses over those that pay solid and reliable dividends. Having less exposure to emerging markets and a bias to Europe also held back performance.

The manager has branched away from traditional equity income sectors such as consumer goods and utilities, instead favouring economically sensitive dividend paying companies, including banks and financial businesses.

We believe the manager is capable of delivering good long-term returns, but we don’t currently rate him as one of the highest-calibre fund managers available, so the fund does not feature on the Wealth 150+ at present.

Charges can be taken from capital which can increase the yield but reduces the potential for capital growth. The manager also has the flexibility to invest in higher-risk high-yield bonds.

Latest research updates

Rathbone Global Opportunities - a different perspective

Rathbone Global Opportunities - a different perspective

Mon 09 April 2018

From the mainstream to the more obscure, James Thomson simply looks for great companies. We recently asked him where he’s currently finding opportunities.

M&G to merge Global Leaders into Global Themes Fund

M&G to merge Global Leaders into Global Themes Fund

Mon 26 March 2018

M&G plans to merge its Global Leaders fund into the Global Themes fund. In this update we consider what this means for investors.

Fidelity - looking for the world's special companies

Fidelity - looking for the world's special companies

Mon 26 March 2018

Jeremy Podger has a long track record investing in companies across the globe. We recently met him to talk about how he invests the portfolio.

SLI Global Smaller Companies - investing in innovation

SLI Global Smaller Companies - investing in innovation

Tue 13 February 2018

Find out the success stories of 2017 and which companies the managers are most positive on for the years ahead.

Newton Global Income - why go global?

Newton Global Income - why go global?

Sat 10 February 2018

In our latest research update we examine what has driven performance and explain why we think it’s worth going global for income.

Investment notes

Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.

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