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Global funds sector review – where in the world is doing well?

We look at how coronavirus has impacted the global economy, trends that are dominating recent headlines, how Global funds have coped, and share our outlook for the future.

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.

Not much has changed since our last Global quarterly review, in that the same headlines seem to still be dominating the investment spotlight. How much longer do we have to live with coronavirus? Will we get a deal done before the Brexit deadline? What will the US election result mean for investors?

In this third quarter Global review, we look at some of these trends, how Global funds have coped and share our outlook for the future. Please note that as this is a third quarter review, performance data is only up until the end of September.

Brexit is a constant topic of discussion across the UK. It’s plagued headlines with news of delays and lots of people struggle to see an outcome that benefits all. Some feel we’ve made a mistake, while others just want a deal done so we can move on, focus on strengthening the economy and battle the coronavirus. But as time goes on, a no deal agreement seems likely.

The result of the US election is also getting ever closer. While there could still be some surprises on the way, it looks more and more likely that Biden could be the next president in the White House. Although the spotlight seems to have shifted for now, there’s no doubt that coronavirus continues to linger in the background. It likely won’t be long before it takes centre stage again.

Whoever wins the race for the White House will no doubt look to prioritise the control and eradication of the virus. However the long-term actions and implications of who wins, both within the US and global economies, are still uncertain.

We saw some positive news as global coronavirus deaths fell during the summer. Certain treatments helped reduce deaths, daily cases slowed down and worldwide lockdowns began to ease. Countries across the world were starting to see forms of recovery.

But this success seems to have been short lived. A mix of a lack of government intervention, unclear restrictions and some not following the rules have given wind to a second wave in some countries.

The global economy remains in deep recession with important indicators on the health of the economy continuing to fall. Levels of debt in the US are rising and now total more than its GDP (Gross Domestic Product). Although the UK’s GDP grew in August 2020, it’s still almost 9% below what it was in February. Similarly unemployment rates are at all-time highs across the US and the highest in the UK since 2017.

The EU’s GDP continues to fall with individual members like Belgium, Spain, France and Italy seeing the most drastic declines. Asia looks to be recovering better than most western countries with China, Korea and Taiwan leading by example. But if we jump down to southern Asia, countries like India and Thailand are struggling with high death tolls and daily cases.

Beneath the noise, global trends are accelerating, long-term opportunities are emerging and people are embracing the new norms of remote working, video gaming and reliance on e-commerce services.

It’s clear the virus is taking its toll and with so much noise it can be tricky to know who and what to listen to. We think investors shouldn’t try to guess short-term outcomes, but instead focus on the long term. Things will eventually return to some sort of normal, it’s just a matter of time and patience.

How has the Global sector performed?

The US remains one of the strongest performing markets over the past 12 months to 30 September, returning 11.3%. Current market favourites Apple, Microsoft, Amazon, Alphabet and Facebook have all bolstered the US market's performance.

We’ve also seen some positive recoveries within the Japanese and east Asian markets. The Japanese market’s now gained 2.6% over the past year. Mainly thanks to strong government support, efficient healthcare and gaining control of the virus. China in particular has generated some strong results, returning 28.8% over the past 12 months. It’s seen a surge in tech exports, mainly medical equipment, and has controlled the virus well.

On the other hand, Europe has seen a resurgence of the virus. Italy, France, Belgium and Spain have been some of the most affected by the second wave. Similarly, the UK’s struggled and declared new lockdown measures. The FTSE All Share has lost 16.6% over the past year.

Technology remains the star performing sector over the 12 month period due to the increased demand for online services, remote working and entertainment. This trend could continue as lots of countries are reintroducing lockdown measures or increasing restrictions. But remember this isn’t guaranteed. Healthcare and biotechnology are also sectors that performed well.

Oil & gas and travel & leisure were some of the worst performing sectors. Economies that rely on any sort of travel, leisure or tourism have been hit hard due to the worldwide lockdowns. The oil & gas sector hasn’t yet recovered from the oil price dip earlier this year. And the increasing focus on renewable energy and environmental factors has dented demand.

The Global outlook

We recently had a ninth round of Brexit negotiations. There’s been some progress, but still plenty of resistance from both parties. If a no deal scenario plays out, it means the UK will be treated as a third country, creating significant trade barriers.

That said, some feel a no deal would be difficult in the beginning but work over the long term. For example, the UK has already agreed a historic free trade agreement with Japan. A deal or no deal decision is likely to be made in November. But Brexit talks will officially end on 31 December when the UK automatically drops out of the EU’s trading arrangements. Things will likely remain uncertain until then.

In the US, Democratic candidate Joe Biden looks on course to win the presidential election. He plans to pump almost $1 trillion more into the economy than his Republican rival Donald Trump. Biden also plans to undo Trump's tax cuts by adding a series of tax hikes to fund healthcare and green infrastructure. This might not go down well with some in the US, but it could help with a recovery.

Tensions between the US and China are also likely to continue whatever the outcome. Though the election of Biden could mean some attempt to thaw relations between the two countries.

China’s seen some recovery since the height of the virus, though most of it has been across the main coastal regions of Beijing, Shanghai and Guangdong. The rest of China has seen a more muted recovery, and no country is completely out of the woods just yet.

How have Global funds performed?

The IA Global sector, which shows the average performance of all global sector funds, has seen some recovery since our last review. It's now grown 7.4%* over the past 12 months, meaning the average global fund has outperformed the FTSE World’s gain of 5.2%*.

It’s no surprise that funds invested in the US and technology sectors have performed strongly, particularly larger growth-focused companies. Funds invested in pharmaceuticals, bio-tech, healthcare and consumer services also did well. They’ve mainly benefitted from the increased demand for a vaccine, stronger reliance on health care and rising demand for e-commerce services.

Baillie Gifford funds currently dominate the Global sector with four funds featuring in the top five best performing over the 12 months to 30 September. This has been helped by their strong growth bias.

Baillie Gifford Long Term Global Growth is at the top, returning 93.9%*. Significant weighting to the US, which has recently increased to roughly 65% of the fund, and the technology and consumer discretionary sectors has helped performance. Investments in Tesla, Amazon and Alibaba responded well to the coronavirus pandemic and contributed to the fund's impressive performance.

Remember though, past performance isn’t a guide to future returns.

In contrast, Quilter Investors Global Unconstrained Equity fund was the weakest fund in the sector, falling by 30.4%*. The managers tend to invest in medium-sized companies undergoing a turnaround or whose shares the managers believe can be bought at a discount to their true worth, otherwise known as value investing.

This style of investing has recently been out of favour, but investment styles come in and out of favour. We think investors should have investments in a range of different approaches in a well-diversified portfolio.

The IA Global Equity Income sector fell 3.5%* over the past 12 months to 30 September. Companies across the world were forced to cut or suspend dividend payments to conserve cash in the wake of the coronavirus crisis – this impacted performance.

Global equity income funds also tend not to invest in growth areas like technology because of the lack of dividends they pay – that also held back returns. There were some exceptions though, lots of Japanese companies were able to maintain dividends as they had large cash reserves.

Annual % growth Sep 2015 - Sep 2016 Sep 2016 - Sep 2017 Sep 2017 - Sep 2018 Sep 2018 - Sep 2019 Sep 2019 - Sep 2020
Baillie Gifford Long Term Global Growth N/A N/A 29.8% -1.8% 93.9%
Quilter Investors Global Unconstrained Equity Fund 18.6% 7.6% 10.5% 1.8% -30.4%
FTSE World 31.2% 15.4% 14.2% 7.9% 5.2%
IA Global 27.2% 15.0% 11.8% 5.9% 7.4%
IA Global Equity Income 26.6% 12.7% 6.8% 7.5% -3.4%

Past performance is not a guide to the future *Source: Lipper IM to 30/09/2020.

N/A - full year data unavailable.

Find out more about Baillie Gifford Long Term Global Growth, including charges

Baillie Gifford Long Term Global Growth Key Investor Information

What the research team have been doing

We’ve continued to meet and speak with lots of global fund managers. We recently spoke to Peter Meany, fund manager of First Sentier Global Listed Infrastructure. Infrastructure has had its ups and downs this year, with toll roads, travel (domestic and international) and tourism being hit hard as restrictions and worldwide lockdown measures completely sapped traffic.

If certain restrictions and lockdowns ease Meany sees a fairly slow recovery, but a recovery nonetheless. But if there are more waves or spikes, economies, markets and countries could continue to be affected.

We also discussed how the coronavirus has accelerated some global trends and highlighted opportunities for businesses going forward, including wind, solar power and green hydrogen. You can find out more in our latest update on the fund.

We also spoke with Svetlana Viteva and Luke Ward, managers of the Baillie Gifford Global Discovery fund. We discussed how the coronavirus has accelerated certain trends, notably the growth of technology and healthcare sectors. The fund invests heavily in these sectors which has helped performance.

Overall, the managers focus on higher-risk smaller companies which are under the radar and look to solve global problems, but they also invest in some larger companies. Despite the strong performance of the US and technology sectors over the past year, investment in these areas has reduced slightly. They’ve been finding opportunities elsewhere, in particular Asia, including India, as well as Latin America.

How have Wealth Shortlist funds performed?

There’s a range of global funds on our Wealth Shortlist, each performing differently. We don’t expect them all to perform in exactly the same way all the time though. We think it’s important for investors to build a portfolio filled with managers who have different approaches and investing styles.

Rathbone Global Opportunities was the best performing global Wealth Shortlist fund over the 12 month period, returning 27.4%.* The fund invests heavily in the US and technology sectors, and companies like Amazon and PayPal have contributed to recent performance.

Jupiter Global Value Equity was the weakest performing global fund on the Wealth Shortlist. The fund has more invested in the UK than many of its peers, and less in the US, which has hurt returns. The manager's value style has also been out of favour for several years. We don’t expect this to always be the case though and think investors should have a blend of different styles as part of a broader portfolio.

This article isn’t personal advice. If you're not sure if an investment is right for you, please contact us about our advisory services. Investments will rise and fall in value, so you could get back less than you invest.

Annual % growth Sep 2015 - Sep 2016 Sep 2016 - Sep 2017 Sep 2017 - Sep 2018 Sep 2018 - Sep 2019 Sep 2019 - Sep 2020
Jupiter Global Value Equity N/A N/A N/A -3.5% -11.4%
Rathbone Global Opportunities 26.5% 16.8% 24.3% 3.5% 27.4%
Baillie Gifford Global Discovery 27.8% 20.6% 39.6% -6.0% 59.5%
First Sentier Global Listed Infrastructure 40.0% 10.7% -2.2% 27.5% -12.8%
FTSE World 31.2% 15.4% 14.2% 7.9% 5.2%
IA Global 27.2% 15.0% 11.8% 5.9% 7.4%

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2020.

N/A - full year data unavailable.

Find out more about Jupiter Global Value Equity, including charges

Jupiter Global Value Equity Key Investor Information

Find out more about Rathbone Global Opportunities, including charges

Rathbone Global Opportunities Key Investor Information

Find out more about Baillie Gifford Global Discovery, including charges

Baillie Gifford Global Discovery Key Investor Information

Find out more about First Sentier Global Listed Infrastructure, including charges

First Sentier Global Listed Infrastructure Key Investor Information

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    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.

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