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Global sector

Global sector

Funds in this sector can differ markedly from each other in terms of exposure to sectors, countries or regions.

Kate Marshall - Senior Investment Analyst
19 February 2021

Funds in the global sector can invest anywhere in the world, but they go about this in different ways. Global funds vary not only by the countries and regions they invest in, but also by the types of companies and sectors they select.

Some focus on developed markets and large multinational corporations, while others invest more in higher-risk emerging markets or smaller companies. Some target companies with higher growth expectations and others search for unloved companies with recovery potential, known as value investing. Some also aim to deliver a growing and sustainable income.

The global sector can also give you access to sectors that aren’t as common in the UK, such as technology. There’s no richer hunting ground than the whole world.

Our view

The UK makes up only a small part of the global stock market, so we think it makes sense to diversify your portfolio by investing in other countries. Economies around the world are at different stages of development and it is important to have exposure to different drivers of returns. Emerging markets tend to focus more on exports, whilst more developed markets can rely more on domestic consumption. Some markets may rely on commodity prices, while others are more sensitive to currency fluctuations, or government policies.

It’s difficult to know which market will do well from one year to the next. By investing across lots of countries, you don’t have to guess which market will perform best and it helps spread the risk.

The Wealth Shortlist contains a selection of global funds we think have the best long-term performance potential. They have different investment styles and areas of focus – each will go in and out of favour, so we think it makes sense to invest in a variety. You can find out more about them in the ‘Fund Reviews’ tab.

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.

Wealth Shortlist funds in this sector

Funds chosen by our analysts for their long-term potential

SEE THE WEALTH SHORTLIST

Performance

Global markets have been on quite a journey over the past 12 months (to end of December 2020). After a turbulent start to the year, most markets ended up in a positive place at the end of 2020, apart from the UK. Despite a strong fourth quarter, the UK’s FTSE All-Share finished 9.8%* down for the year, the lowest calendar year return since 2008 during the global financial crisis. Certainly, a year to forget for home-soil investors.

It’s a different story for Asia and the US. Both delivered impressive returns, and their success isn’t what we’d expect in a global pandemic. Although past performance is no indication of future returns.

The Japanese stock market also weathered the year better than most of its developed market peers. Their policies have been supportive for recovery, and the home of the 2021 Olympics looks well poised to kick on.

While it’s recovered from the lows back in March, performance in Europe has been mixed. Spain and France have detracted from the region as lockdowns continue to stall any meaningful growth. Germany fared better than many of its continental peers in 2020 with GDP falling 1.2% less than the region. Revenue compensation and grants to the self-employed are just a few of the tools deployed as national debt reaches record levels.

The standout performer in Europe has been the Nordics. While most global banks are suggesting they plan to keep interest rates lower for longer to prop up the economy, Norway’s toyed with the idea of a rate hike in 2022.

Since their lows in March, markets have rebounded sharply, and smaller companies have driven the recovery on the global stage. Despite only making up around 11% of the FTSE Global All Cap Index, they’ve outperformed their larger peers by 22.5%* since 23 March. Smaller companies in the UK have seen one of the strongest rebounds with M&A (mergers and acquisitions) activity on the rise. Those in Emerging Markets like Brazil and India have also recovered strongly, but have been far more volatile.

Global markets - performance throughout 2020

Past performance is not a guide to future returns. Source: *Lipper IM to 31/12/20.

Smaller companies can benefit by being able to be nimble and adapting quicker than their larger competitors. Flatter management structures, smaller teams and leaner business models help them be more flexible – and these have played to their advantage.

Remember though, just because they’ve done well in the past doesn’t mean this will continue. Smaller companies are also normally more risky.

Recovery could continue this year as economies emerge from lockdowns and it is likely to be more wide-reaching. Many industries are still playing catch-up with Covid winners such as technology and the concentration of returns could potentially be lower in 2021. There is still a lot of uncertainty though and, as we know from 2020, it’s impossible to call the year’s final winners.

Policymakers have been extremely accommodative and navigated markets through the worst of the pandemic. Until the vaccine has been distributed globally and proved effective, support is likely to remain – and so is volatility. Diversification remains key as economies around the globe recover at different speeds.

Annual % growth Dec 15 - Dec 16 Dec 16 - Dec 17 Dec 17 - Dec 18 Dec 18 - Dec 19 Dec 19 - Dec 20
FTSE All Share Index TR 16.8% 13.1% -9.5% 19.2% -9.8%
FTSE Global Small Cap Index TR 33.3% 12.0% -8.3% 21.1% 14.7%
IA Global 24.4% 13.8% -5.6% 22.1% 14.8%
IA Global Equity Income 25.0% 10.5% -5.8% 18.9% 3.5%

Past performance is not a guide to future returns. Source: *Lipper IM to 31/12/20.

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.

Our Wealth Shortlist features a number of funds from this sector, selected by our analysts for their long-term potential. The Shortlist is designed to help investors build and maintain diversified portfolios. To use the Shortlist, you should be comfortable deciding if a fund fits your investment goals and attitude to risk. For investors who don't feel comfortable building and maintaining their own portfolio we offer ready-made solutions, which are aligned to broad investment objectives. For those who want extra help, you can also ask us for financial advice.

The fund reviews below are provided for your interest but are not a guide to how you should invest. For more information, please refer to the Key Investor Information for the specific fund. Remember all investments, and income from them, can fall as well as rise in value so you could get back less than you invest. Past performance is not a guide to the future.

There’s a tiered charge to hold funds with HL. It’s a maximum of 0.45% p.a. View our charges. Comments are correct as at 31 December 2020.

Wealth Shortlist fund reviews

Jacob de Tusch-Lec aims to deliver a higher income than the global stock market average by investing in some out-of-favour companies.

There aren’t many global income funds like this one. The manager invests in lots of unloved companies he thinks could return to favour, and who tend to offer higher yields than higher-quality, growing companies. This means performance has often looked very different to the benchmark and its peers. De Tusch-Lec also invests in some higher-risk smaller companies and emerging markets, and can invest in high-yield bonds and derivatives, which add risk if he does.

The fund has performed better than the IA Global Equity Income sector since launch in July 2010. The manager’s ‘value’ investing style has been out-of-favour for several years, which has led to poor performance compared with the sector average. Market volatility onset by Covid-19 saw many investors flock to the perceived shelter of high-quality companies which has hindered returns over the past year. However, performance was stronger during the second half of 2020 as positive vaccine news supported unloved value companies.

Investing as de Tusch-Lec does requires patience, and it won’t always work. We think it’s important for a portfolio to contain a range of different investment styles, as they fall in and out of favour over time, and what works well now may not work so well in the future.

The managers invest in under-the-radar smaller companies from around the world for their higher growth potential than larger companies.

Veteran fund manager Harry Nimmo and Kirsty Desson champion the benefits of investing in companies considered too small by many other global fund managers. They look in both developed and higher-risk emerging markets to find businesses they think are high-quality, growing and have momentum behind them. Smaller companies have tended to perform better than larger ones over the long term but they’re more volatile and higher risk. The managers can use derivatives, which adds risk if they do.

This fund invests in relatively few companies. That means each one can have a greater impact on performance, although it's a higher-risk approach. Both recent performance and performance since the fund launched in 2012 has been very strong, although from 2016 until recently the fund had been run by another manager, so much of this performance can’t be credited to Nimmo and Desson. The fund was co-founded by Nimmo using his own investment philosophy, and Desson has been a long-standing member of the team, so we see no reason why they can’t continue the fund’s excellent long-term results, although there are no guarantees.

Daniel Roberts aims to provide a higher yield than the global stock market by investing in companies he thinks can reliably grow both their share price and dividends over many years.

Roberts likes easy-to-understand businesses with predictable earnings and sensible management. He has a fairly conservative investment approach, placing a lot of emphasis on aiming to shelter investors’ capital. He normally invests in large companies from developed markets but can also invest in smaller companies and emerging markets, and use derivatives, all of which add risk.

The fund has done well amid recent stock market volatility, performing much better than the IA Global Equity Income sector average. Over the longer term it’s also delivered some of the strongest returns among its global income peers.

This fund offers a simple and low-cost option for investing in a large number of companies from developed markets.

The managers invest in virtually all companies from the major developed-world stock markets including the UK. That means there are over 1,600 companies in the portfolio. The managers use their decades of experience and the scale of their organisation to keep costs low and closely match the performance of the global stock market. They can use derivatives to help them invest, which adds risk if used.

Since launch the team have done an excellent job at replicating index performance. As with nearly all index trackers, the fund often marginally lags the index due to the costs involved, but it’s kept very close. We think it’ll keep up the good work over the long term, although there are no guarantees.

Ben Whitmore and Dermot Murphy look for unloved companies that they think are attractively-priced and will return to favour.

The managers don’t chase companies with high-growth expectations, which they think can often be expensive. They like the unpopular or unfashionable ones whose shares can be bought for less than they think they’re worth. The managers invest in relatively few companies so each can have a big impact on performance, but it increases risk. So does the flexibility for them to invest in smaller companies and emerging markets.

Performance against the wider sector has been poor. Investors have favoured companies with high-growth expectations, leaving the managers’ favoured unloved companies behind. Their ‘value’ approach requires patience as it can take time for companies to recover, and the managers won’t get everything right.

As the fund approaches its three year anniversary we think it’s too early to properly judge performance. Whitmore has lots of experience running other value-focused funds in a similar way though. We think his experience and track record bode well for this global fund over the long-term, although there are no guarantees.

The fund aims to track the FTSE World (excluding UK) index as closely as possible, by using the scale and know-how of Legal & General, one of the largest providers of tracker funds in the UK.

The fund invests in over 2,200 companies across most of the world’s major economies. It doesn’t invest in any UK companies though. The amount invested in each country depends on its share of the global stock market. That’s why over half the fund is invested in the US, followed by Japan and European countries like France and Switzerland. The fund also invests in more advanced emerging markets, which adds risk.

It’s done a good job at hugging the index as closely as possible. Part of that is down to keeping its charges low, as charges hold back performance. We think it’s an excellent low-cost option for investing in a very broad range of global companies.

James Thomson invests mainly in companies he thinks have the best long-term growth prospects, but also invests in some more stable ones that tend to do well in both economic ups and downs.

The manager likes to look off the beaten track to find companies he thinks will grow over the long term. He normally finds those among large companies from developed countries, and usually avoids higher-risk emerging markets and smaller companies, although he can invest in them.

Thomson also invests in a lot of companies well-known for their growth prospects. US companies in general make up over half the current portfolio with software and computer services being the managers favoured sector.

The fund’s done significantly better than the broader global stock market recently, and Thomson’s long term track record is also excellent. He’s beaten his benchmark by a fair distance. We think he’s highly skilled at picking companies for their long-term growth potential, though that’s no guarantee of future returns. Past performance is not a guide to the future.

James Harries aims to grow both capital and income over the long-term by selecting companies he considers high-quality.

This fund invests in companies that James Harries thinks are financially sound and provide goods or services that are usually always in demand. Troy sets a very high standard when it comes to a company’s quality and those within the portfolio tend to be large businesses from developed regions like North America and Europe. The portfolio contains a small number of companies, so each can have a big impact on performance, both positively and negatively. Harries aims to grow income sustainably over time but places more importance on total return. The fund can use derivatives, which if used increases risk.

The fund has outperformed the sector average since Harries launched it in November 2016, although it has lagged versus its own benchmark. Harries’ track record of over 15 years is also strong, and we expect him to keep performing well over the long term, particularly during market wobbles, although there are no guarantees. Remember past performance isn’t a guide to the future.

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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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