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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.

Henry Ince - Investment Analyst
20 July 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 better 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 consider investing 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 performance potential

SEE THE WEALTH SHORTLIST

Global stock markets rose in value in the first half of 2021 as investors anticipated a global recovery. It hasn’t all been plain sailing though and there could be more volatility.

Over the past 12 months, the FTSE World Index has returned 25.5%*. The US accounts for over 60% of this index and has helped drive performance as the FTSE USA index grew by 27.1%. Asia has also been robust with the FTSE Asia Pacific ex Japan Index increasing by 25.9%. Within the region, the Korean, Taiwanese and Indian stock markets were some of the strongest performers over the past 12 months.

Whilst positive, Japan has been the notable laggard over the past year with the FTSE Japan index returning 12%. The country’s vaccine rollout has been slower than international peers but has accelerated more recently. Foreign demand has also picked up, especially from the US and China which has triggered the largest rise in exports in over 40 years. With supportive economic policies still in place and a market that looks good value compared with others, Japan looks poised to push on.

Looking at the past 12 months in isolation, you may have missed the stark difference in country performance pre-and post-successful vaccine news. Since 9 November 2020 market leadership has flipped as investors turn to more cyclical regions like Emerging Markets and last year’s underperformers, Europe.

Chart showing global stock market performance before and after vaccine news

Scroll across to see the full chart.

Past performance is not a guide to future returns. Source: Lipper IM 01/01/2020 to 30/06/2021.

After a year to forget, the UK stock market has roared back into action since Pfizer and BioNTech announced vaccine success on 9 November. Effective vaccination programmes mean economies could open quicker. This has helped companies whose fate is closely linked to the strength of the economy such as oil, mining, financials and construction. It has also provided a boost for the hospitality sector where employment figures have started to pick up.

Although their vaccine response has been slower, it’s been a similar story for European companies, especially for those in more economically sensitive industries. Scandinavian countries like Denmark, Norway and Sweden have been some of the strongest performers. The Dutch stock market has also performed better than its regional peers since November.

The vaccine news has also been largely positive for Asia and Emerging Markets. But for China, it’s been a different story. Quick and effective measures to suppress the virus saw the world’s second biggest economy lead much of the initial recovery. But despite GDP already returning to pre-pandemic levels, its stock market has come off the boil.

As shown in the chart above, between 9 November 2020 and 30 June 2021, the FTSE China Index declined by 1.9% versus an increase of 16.6% for the FTSE World Index. But after such a strong period of growth it’s natural for other markets to play catch-up. Sector-wise, technology and software companies have suffered the most. Regulatory scrutiny has been a headwind for ‘big tech’ and put increased pressure on the share prices of some of the country’s biggest companies. Technology makes up over 25% of the FTSE China Index which means it can have a material impact on overall performance. But it’s not all doom and gloom. Sectors like healthcare, chemicals and industrial metals have experienced strong growth.

Scroll across to see the full table.

Annual percentage growth Jun 16 – Jun 17 Jun 17 – Jun 18 Jun 18 – Jun 19 Jun 19 – Jun 20 Jun 20 – Jun 21
FTSE All-Share 18.1% 9.0% 0.6% -13.0% 21.5%
FTSE Asia Pacific ex Japan 27.7% 7.0% 5.1% 2.8% 25.9%
FTSE China 28.5% 20.7% -6.5% 13.3% 25.4%
FTSE Denmark 10.0% -0.1% 8.1% 26.4% 29.5%
FTSE Emerging 24.1% 5.9% 8.3% -0.4% 24.5%
FTSE Europe ex UK 28.7% 3.0% 8.6% 0.2% 23.0%
FTSE Japan 24.0% 9.3% -1.2% 6.8% 12.0%
FTSE Norway 20.0% 28.3% 0.5% -19.1% 40.3%
FTSE Sweden 32.1% -4.9% 9.3% 7.4% 39.3%
FTSE USA 21.6% 12.7% 14.3% 11.6% 27.1%
FTSE World 22.9% 9.3% 10.4% 5.8% 25.5%

Past performance is not a guide to future returns. Source: *Lipper IM to 30/06/2021.

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 performance 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 personal recommendations, 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 any 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 30 June 2021.

Wealth Shortlist fund reviews

Jacob de Tusch-Lec aims to deliver a higher income than the global stock market average by taking a contrarian approach and investing in areas that others may avoid.

There aren’t many global income funds like this one. The manager invests in unloved companies he thinks could return to favour, and which have tended to offer higher yields than higher-quality, growing companies. This means performance often looks 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 used.

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. More recently, the fund has benefitted from the rotation into more economically sensitive parts of the market which over the past 12 months has led to strong outperformance versus peers in the IA Global Equity Income sector. This is what we expect from the fund in a rising market, but the opposite is true when markets are falling.

Investing this way 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 outside the usual candidates of large firms that dominate stock markets.

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 also 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. Performance over the past year and since launch in January 2012 has been strong, although from 2016 until June 2020 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 sheltering 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.

Since launch the fund has delivered strong returns versus the IA Global Equity Income sector average. The managers bias towards quality companies has meant that the fund usually outperforms during falling markets but lags rising ones. This has been the case more recently with the fund underperforming the sector average over the past 12 months. Robert’s allocation to more defensive sectors coupled with weaker stock and country selection are partly to blame. Despite this, we remain optimistic about the managers ability to add value over the longer term.

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 1,500 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 has 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.

Until recently investors have favoured companies with high-growth expectations which has been a headwind for the managers’ preferred unloved companies. The managers ‘value’ approach requires patience as it can take time for companies to recover, and the managers won’t get everything right.

The fund has now reached its three year anniversary and since launch it has underperformed the IA Global sector average. Although disappointing, our analysis suggests this is a result of style, not stock selection. We believe style is temporary, whilst good picking skills are repeatable. This has been the case over the past 12 months with the fund outperforming the IA Global sector average though this is a short time frame to judge performance. Whitmore has lots of experience running other value-focused funds and 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 North America, followed by Japan and European countries like France, Germany and Switzerland. The fund also invests in more advanced emerging markets and can use derivatives to help manage the fund efficiently, both of which add 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 have tended 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 technology and consumer discretionary sectors being favoured by the managers.

Over the past 12 months the fund slightly underperformed the IA Global sector. This is in part down to weaker stock selection and not being invested in sectors that have seen their fortunes change such as energy. Thomson’s long-term track record is excellent and has outperformed the IA Global sector average by quite some way. 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 believes are financially sound and provide goods or services that are usually always in demand. Troy sets a high standard when it comes to a company’s quality and the manager mainly invests in large businesses from developed regions like North America and Europe. While he has the flexibility to invest in higher-risk emerging markets, he tends to avoid them, preferring companies that sometimes sell their products in these regions. The fund invests in 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 (income and capital growth).

The fund has marginally underperformed the sector average since it launched in November 2016, although it’s been a less volatile option. Given Harries’ focus on high-quality companies we expect the fund to hold up relatively well when markets fall, which happened during the depths of the crisis last March and since launch. However, not owning companies that are highly sensitive to economic conditions has held back recent performance. Harries’ track record of over 15 years is also strong, and we think he has the potential 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.

Investors should be aware that charges are taken from capital, which can increase the yield but reduces the potential for capital growth. The manager also has the flexibility to use derivatives which, if used, increases risk.

The fund currently has a holding in Hargreaves Lansdown plc.

Source for performance figures: Financial Express.

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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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