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Global stock market and funds sector review – an improved but uneven outlook

As the global economy continues to recover from the impact of Covid-19, we look at how different regions around the globe have been coping, and how global funds and stock markets have performed.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Henry Ince
Investment Analyst

Published on 21 July 2021

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

The global economy was in a very different place this time last year as pandemic induced lockdowns brought economic activity to a standstill. With no end in sight, the outlook for global growth looked bleak, sending stock markets into a frenzy and triggering one of the deepest economic recessions on record.

Fast forward 12 months, and the picture’s very different. The first half of 2021 has been largely positive for stock markets around the world. Hopes of returning to a new ‘normal’ have been fuelled by vaccination roll-outs, improving the general outlook for global growth.

Governments worldwide have administered over three billion vaccine doses to keep the virus at bay. Progress varies drastically from country to country, with developed economies being the quickest to rollout. Nearly half the UK and US have been fully vaccinated which is the highest of the G7 nations. After a slow start, the European Union has also started to make good progress with Hungary, Spain and Germany leading the charge.

But we’re not out of the woods yet. New variants of the virus remain a real threat as we’ve seen recently with the ‘Delta’ variant. So far, current vaccines are resilient, but if new variants emerge, this might be cause for concern.

An improved but uneven outlook

The vaccine rollout is not only crucial for health, it’s essential for any type of recovery in the economy. And the speed at which the global population is being ‘jabbed’ has led to increased confidence in the outlook for global growth. According to the Organisation for Economic Co-operation and Development (OECD), global GDP growth for 2021 is expected to be 5.8%. That’s 1.6% higher than their initial projections at the end of 2020.

For lots of advanced economies, the return to pre-pandemic levels of Gross Domestic Product (GDP) per capita – a measure of prosperity – is expected by the end of 2022. For others like Argentina and South Africa, it could be a much longer road to recovery.

This article isn’t personal advice. If you’re not sure whether an investment is right for you, please ask for financial advice.

How have global markets performed?

Global stock markets rose 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 ups and downs to come.

Over the past 12 months, the FTSE World Index returned 25.5%*. The US makes up over 60% of this index and helped drive performance as the FTSE USA index grew by 27.1%. Asia also did well 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.

While 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 policies in place to help support the economy 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 might have missed the stark difference in country performance pre- and post-successful vaccine news. Since 9 November 2020, market leadership has flipped. Investors have turned to more cyclical regions (ones that rely on a strong economy to do well), like emerging markets and last year’s underperformers, Europe.

Pre & Post Vaccine News

Scroll across to see the full chart.

Past performance is not a guide to the future. Source: * Lipper IM 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 meant economies could open quicker. This has helped companies whose fate is linked to the strength of the economy like oil, mining, financials and construction. It’s 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 more cyclical 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 a quarter of the FTSE China Index, which helps explain the poorer performance. But it’s not all doom and gloom. Sectors like healthcare, chemicals and industrial metals have done well.

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 the future. Source: Lipper IM, to 30/06/2021.

What have the research team been doing

Over the last three months, we’ve been busy speaking with fund managers investing around the globe, each with their own unique style and approach.

We caught up with Ben Whitmore, co-manager of the Jupiter Global Value Equity fund. Whitmore and fellow co-manager Dermot Murphy look to invest in out-of-favour companies (value stocks) whose share prices don’t seem to reflect their true worth, so can be bought at an attractive price. Value has outperformed growth more recently, and Whitmore believes there’s still a big opportunity in this part of the market.

He’s invested more money in companies like Nokia, a global leader in networking equipment. The business suffered in recent years following its acquisition of Alcatel-Lucent in 2016, losing its market leadership within 5G and pushing the share price lower. With a robust balance sheet and new management team looking to make up lost ground, Whitmore is optimistic about the company’s future.

We spoke with Tom Slater, Baillie Gifford’s Head of US Equities and co-manager of Scottish Mortgage Investment Trust. His long-term, patient approach focuses on companies with huge growth potential that possess hard-to-replicate advantages over competitors.

Slater spoke about some of the exciting opportunities he’s found, such as privately owned gaming company Epic Games. Slater praised its ability to continually develop an enduring franchise like Fortnite and attract an ongoing revenue stream from players. This also keeps the content innovative and current. Live events like in-game concerts make Fortnite more than just a game, it’s also an online environment for social interaction.

We also had a meeting with Ilga Haubelt and Jon Bell, two of the four managers of BNY Mellon Global Income. Their philosophy centres around the idea that compounding (reinvesting) of dividends over time is the best way to achieve long-term returns.

Last year the pandemic put a huge strain on corporate balance sheets, creating strong headwinds for income investors. However, this meant the team could invest in what they believe to be attractive businesses at low share prices. This was broadly split between those with recovery potential like analytics company, RELX and those that should benefit from longer-term trends like semiconductor producer Texas Instruments.

For more details on each fund and its risks, please see the links to their factsheets and key investor information below. Remember past performance is not a guide to the future. Investments and any income they produce can fall as well as rise in value, so you could get back less than you put in.

How have our Wealth Shortlist funds performed?

Performance has been mixed over the past 12 months for global funds on the Wealth Shortlist. This is what we would expect given the variety of different styles and investment approaches. If all funds in a given sector are performing well at the same time, they're probably investing in similar areas. Those same areas won't perform well all the time, so it can be painful when they're out of favour.

Artemis Global Income was the best performing Global Wealth Shortlist fund over the past year, returning 33.2% versus 21.5% for the IA Global Equity Income sector. The manager, Jacob de Tusch-Lec, takes a contrarian approach and invests in areas that others might avoid. The fund invests in a range of companies, from more mature, predictable companies to those that are more sensitive to how the economy is doing.

Our analysis suggests that performance over the past year has been a combination of both positive stock selection and style tailwinds.

In contrast, Trojan Global Income was the weakest Global fund on the Wealth Shortlist, returning 7.3% vs 21.5% for the IA Global Equity Income sector. James Harries hunts for large, financially strong companies that have shown their resilience through both good and bad times for the wider economy. This style is known as ‘quality’.

We expect the fund to hold up relatively well when markets are falling, which happened during the depths of the crisis last March. On the other hand, when markets are rising quickly, we expect the fund to lag the peer group. Not owning companies that are highly sensitive to how the economy is doing has hindered short-term performance. So has some weaker stock selection in the consumer staples sector, a large overweight for the fund.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

Find out more about The Wealth Shortlist

Annual percentage growth
	Jun 16- Jun 17	Jun 17 - Jun 18	Jun 18 - Jun 19	Jun 19 - Jun 20	Jun 20 - Jun 21
Artemis Global Income	24.8%	8.7%	-3.6%	-10.0%	33.2%
Trojan Global Income	N/A	2.6%	15.7%	6.3%	7.3%
IA Global Equity Income	19.6%	3.7%	8.6%	-2.5%	21.5%

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

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

Annual percentage growth
	Jun 16- Jun 17	Jun 17 - Jun 18	Jun 18 - Jun 19	Jun 19 - Jun 20	Jun 20 - Jun 21
Jupiter Global Value Equity	N/A	N/A	-6.8%	-8.5%	32.3%
IA Global	23.7%	9.5%	7.4%	5.2%	26.1%

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

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

Find out more about Jupiter Global Value Equity Fund including charges

Jupiter Global Value Equity Fund Key investor information

Find out more about Scottish Mortgage Investment Trust including charges

Scottish Mortgage Investment Trust Key investor information

Find out more about BNY Mellon Global Income including charges

BNY Mellon Global Income Key investor information

Find out more about Artemis Global Income including charges

Artemis Global Income Key investor information

Find out more about Trojan Global Income including charges

Trojan Global Income Key investor information

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