Global funds sector review – pressures from inflation and rising rates continue

Most countries around the world are experiencing rising inflation. The US, Europe and the UK, for example, are dealing with inflation of 8.2%, 9.9% and 10.1%, respectively. Rising energy prices and constrained food supplies are just two of the factors driving inflation to heights not seen in decades. This adds pressure on households and businesses alike.

To combat inflation, central banks around the world have raised interest rates, again, to levels not seen in many years. While this might help stem inflation to some extent, higher interest rates have the potential to tip economies into recession.

In the UK, the Bank of England (BoE) reiterated its commitment to cutting inflation. The BoE enacted its seventh consecutive rate hike in September, which has seen interest rates rise to 2.25%. Borrowing costs are now at their highest levels since 2008, so it was perhaps unsurprising the government’s substantial and unfunded support package was met with scepticism by the public.

Europe is also facing a number of macroeconomic challenges, including the ongoing conflict in Ukraine, supply chain constraints and rapidly rising energy prices. Growth has slowed across most of Europe and inflation remains stubbornly high. The impact of the crisis in Ukraine, as well as the subsequent spike in energy prices, are the driving forces behind Europe’s inflation, which could exceed 10% in the coming months.

To try to reduce this, the European Central Bank (ECB) increased interest rates by 0.75% in September and are expected to go further in the months ahead. Another rate increase of 0.75% in October followed by a hike of 0.5% in December is expected. This would bring the ECB’s base rate to 2% by the end of this year.

The level of inflation in the US eased for the third month in a row in September. This was mainly because of lower energy prices. With rising prices expected to moderate for the rest of the year and signs of slower growth, the Federal Reserve (Fed) might be able to pause rate hikes once it reaches its 4-4.5% target. This would be the highest level since 2007. So far, the Fed’s raised rates to 3.25%, indicating there might still be work to be done.

Asian central banks have been hiking interest rates too. The central banks of the Philippines and Indonesia both delivered a recent increase of 0.5%. The inflation picture is similar there, with countries across the continent experiencing stubbornly high levels. Inflation in key economies in the region, like India and Singapore, has reached 7.4% and 7.5%, respectively.

This article isn’t personal advice. If you're not sure if an investment is right for you, ask for financial advice. All investments and any income then produce can rise and fall in value, so you could get back less than you invest.

How have global markets performed?

Global stock markets have been volatile this year, so major stock markets have delivered mixed results over the last 12 months to the end of September. As always though, past performance isn’t a guide to future returns.

Only two major stock markets delivered a positive return during this period. The FTSE 100 grew by 0.90%* and the FTSE USA grew 0.11%, buoyed by sectors like oil and gas, and energy.

Asian markets have been under strain this year, due to a number of factors. The stronger US dollar, high inflation, continuing conflict in Ukraine and tighter financial conditions have all posed headwinds. Growth across the region is expected to slow as a result.

China, Asia’s largest economy, has endured a particularly difficult year. The ongoing property crisis and the impact coronavirus is having on growth, including tighter regulations and longer than expected lockdowns, has complicated things. Over the last 12 months, the Chinese market has fallen 21.55%.

Globally, the oil and gas sector has performed strongly over the past year, with a UK and US ban of Russian oil and gas imports helping to push up commodity prices. Conditions remain volatile, with prices rising and falling quickly. Other more defensive sectors like healthcare and consumer staples held up well too, as they tend to be needed regardless of economic conditions.

One-year stock market performance

Scroll across to see the full chart.

Past performance isn’t a guide to future returns. Source: *Lipper IM, to 30/09/2022.

Past performance is not a guide to the future. Source: *Lipper IM, to 30/09/2022.

How have our Wealth Shortlist funds performed?

Global funds on the Wealth Shortlist delivered different performances over the past year, with some faring better than others. Funds investing in companies undergoing a turnaround or those focused on paying a dividend, otherwise known as ‘value’ focused funds, did well. Those investing in companies capable of above-average earnings growth, also known as ‘growth’ funds, took a hit.

One year is a short period to assess the skills of a fund manager. Managers with different strengths, styles and areas of focus will perform differently over time.

Remember, all investments can fall as well as rise in value, so you could get back less than you invest. For more details on each fund and its risks, please see the links to their factsheets and key investor information below.

Troy Trojan Global Income has been the best-performing fund in the global sector of the Wealth Shortlist fund over the past year. This fund aims to provide a growing income by investing in companies from across the globe and over this period, the fund returned 7.10%*. Please note the fund takes charges from capital, which could boost the income paid, but reduce the potential for capital growth.

The managers of this fund take a more conservative approach to investing. They focus on more defensive areas of the market, which have the potential to provide some resilience when markets go through tougher times.

FIND OUT MORE ABOUT TROY TROJAN GLOBAL INCOME, INCLUDING CHARGES

TROY TROJAN GLOBAL INCOME KEY INVESTOR INFORMATION

Jupiter Global Value Equity and Artemis Global Income were the next two best-performing funds, returning 4.54% and 1.53%, respectively.

The Jupiter Global Value Equity fund benefited from ‘value’ returning to favour with investors, with certain investments in the consumer staples and financials sector delivering good returns.

Artemis Global Income aims to pay a growing income over time, so tends to focus on some of the more economically sensitive areas of the market. Investments in the industrial and basic materials sectors held up well, whereas some of the investments in telecoms and utilities detracted from performance.

The fund takes charges from capital, which could boost the income paid, but reduce the potential for capital growth.

FIND OUT MORE ABOUT JUPITER GLOBAL VALUE EQUITY, INCLUDING CHARGES

JUPITER GLOBAL VALUE EQUITY KEY INVESTOR INFORMATION

FIND OUT MORE ABOUT ARTEMIS GLOBAL INCOME, INCLUDING CHARGES

ARTEMIS GLOBAL INCOME KEY INVESTOR INFORMATION

The abrdn Global Smaller Companies fund was the weakest performing fund in the global sector of the Wealth Shortlist. The manager’s growth-focused investment style has had a particularly tough time since the start of 2022. The fund’s investments in the US and in certain sectors like industrials and consumer discretionary, have felt the most pain.

The fund is likely to perform better when growth investing is in favour, but not so well when value companies are in vogue. The fund, and its managers, have a good long-term record, and we rate the team’s disciplined investment approach that has been used across a range of funds over the years.

FIND OUT MORE ABOUT ABRDN GLOBAL SMALLER COMPANIES, INCLUDING CHARGES

ABRDN GLOBAL SMALLER COMPANIES KEY INVESTOR INFORMATION

Past performance is not a guide to the future. Source: *Lipper IM, to 30/09/2022.

N/A = performance data for this time period is not available.

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