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Global stock markets and funds review – what's performed well around the world?

Jonathon Curtis, Investment Analyst, takes an in-depth look at what’s been happening to stock markets around the world and within the popular Global funds sector.

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.

Investors have found a lot to be nervous about in recent years. First there was Brexit. Then there were President Trump’s trade wars and tweets. Perhaps North Korea and Iran caused some furrowed brows. And on top of all that economic growth had been slowing.

Then along came coronavirus.

As countries around the world locked down in an effort to halt the spread, it’s been an unending source of debate and anguish. After stock markets around the world declined at break-neck speed in February and March, economic figures soon followed suit. The EU, UK and US all saw record declines in GDP, a measure of economic output.

As lots of countries began to emerge from lockdown, the topic on every economist’s lips turned to the shape of the recovery. An alphabet soup of theories emerged, with talk of V, L, W and other-shaped recoveries proposed. Scientists continue to debate the threat of the virus, the best way to deal with the spread and the potential for treatments and a hallowed vaccine.

Governments and central banks around the world have made their mark, with unprecedented levels of financial support for workers and businesses – and even interest rate cuts when it seemed like they couldn’t go much lower. With government debts piling up, and more likely on the way as many are expected to turn on the spending taps, we could also see the potential for inflation to rear its ugly head.

With so much noise it can be difficult for investors to know what to do. No-one really knows how the pandemic will play out, and what impact it’ll have on economies and companies. That’s why we don’t think you should try to guess or make short-term investment decisions based on uncertain outcomes. You might correctly predict the outcome, but the markets might react differently. Or you might get your timing wrong, which can be just as costly as your predictions being incorrect.

As always, we think the best course of action is to stay focused on investing for the long term. Make sure your portfolio reflects how much risk you’re happy taking and is well-diversified for whatever the future has in store.

Please note nothing in this article should be seen as 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.

Where in the world has done well?

As has been the case for several years, the US has been the strongest of the world’s major markets over the past 12 months*. Coupled with its already mammoth size, the US now makes up nearly 60% of the world’s markets – a lot of the global stock market is tied to fortunes across the pond. Dig a little deeper and the picture becomes even starker – the five largest US companies (Apple, Microsoft, Amazon, Alphabet and Facebook) make up more of the global stock market than the seven largest European stock markets combined (France, Switzerland, Germany, Netherlands, Sweden, Spain and Italy).

World's largest stock markets and companies

Source: as at 31 July 2020.

The US market’s 5.4% gain over the past 12 months single-handedly kept the broader global stock market’s head above the water, as all the other major ones nursed losses during that period. Emerging markets, Europe, Asia Pacific and Japan limited theirs to single digits, but the UK fared far worse. The FTSE All Share lost around 18%.

Over the longer term too the US has been the strongest of the major markets. It returned nearly three times as much as the next best market (Europe) over the past ten years. Emerging markets on the other hand have been the weakest, closely followed by the UK.

Sector-wise, technology has been the star performer over the last year. As worldwide lockdowns saw people across the globe further embrace remote working, online shopping, digital payments, streaming entertainment and video gaming, technology companies have been major beneficiaries. This is by no means a recent trend though. The technology sector has been the strongest performing over the past ten years too.

At the other end of the table are the oil & gas and basic materials (which includes mining, chemicals and forestry) sectors. They suffered from a slump in the oil price earlier in the year coupled with lack of demand for commodities and energy during the worldwide lockdowns. They’re also increasingly under pressure as investors pay more attention to the environmental impact of companies they invest in.

A word of caution

Despite the decade-long dominance of the US and technology sectors, and the weak performance of emerging markets, the UK, oil & gas and basic materials, it won’t always be that way. Trees don’t grow to the sky.

Investment performance usually goes in cycles. In the previous 10-year period, for example, the US was the worst-performing major market, losing around 10%. On the other hand the UK did much better and emerging markets were the top performers. The technology sector too was the worst sector to be in during the previous 10-year period. It would’ve lost more than half your money as the ‘dot com’ bubble burst in the early 2000's, while basic materials and oil & gas came out on top.

We’re not making any predictions about the future, but it’s important to remember there’s no such thing as a sure winner in investing, no matter how likely it currently seems. Investing is uncertain and unpredictable, that’s why we favour a diversified approach – investing across markets and sectors. A truly diversified portfolio means not everything will be working at the same time. But it also means you’re more likely to have some things doing well, whatever is happening in the world.

Best and worst performing markets and sectors

Past performance is not a guide to the future. Source: Lipper IM *to 31/07/2020.

How have Global funds performed?

The IA Global sector, which shows the average performance of all global sector funds, performed slightly better than the global stock market over the past 12 months. It returned 0.6% compared with the FTSE World’s 0.2% rise.

Funds with a high weighting to the strong performing US and technology sectors did well, particularly those focused on fast-growing companies. Those investing in higher-risk smaller companies, or with a ‘value’ style, investing in unloved companies with recovery potential, haven’t fared so well. The value approach has been out of favour for many years as investors have generally preferred companies whose earnings are growing. But value investing has performed better than growth investing for many long stretches throughout history. And while we wouldn’t expect growth to trump value forever, this trend could carry on for several years.

The IA Global Equity Income sector has also had a tough time, losing 7.1% in the past year. Much of the global stock market’s recent positive returns have come from companies that don’t pay dividends, like many of the large technology companies. And as dividends around the world were cut in the fallout from lockdown this combination has hurt the returns of lots of global income funds.

Baillie Gifford Long Term Global Growth was the best-performing fund in the sector over the past 12 months. Managers Mark Urquhart and Tom Slater are out-and-out growth investors, seeking companies they think can significantly grow their earnings over the long term. They currently invest around 60% in the US and more in the technology sector than any other area. The fund’s top 10 contains many current stock market darlings, including Tesla and Amazon, which alone make up nearly a fifth of the portfolio. Their share prices have soared recently and contributed to the fund’s recent strong returns. Remember past performance isn’t a guide to the future and you may get back less than you invest.

Growth (%) 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
Baillie Gifford Long Term Global Growth n/a n/a 27.1 9.4 61.3
FTSE World 18.0 18.2 12.4 11.0 0.2

Any gaps mean data is unavailable. Past performance is not a guide to the future. Source: Lipper IM to 31/07/2020.

What the research team have been doing

We’ve added a number of new funds to the Wealth Shortlist recently, one of which was Fidelity Index World. This is a ‘passive’ index tracker fund, where the managers look to match the performance of the broader developed-world global stock market, rather than try to beat it. Part of how they do this is keeping costs low, as costs detract from performance. They also invest in virtually all the stocks of the index, meaning the portfolio is highly diversified with over 1,600 holdings. We like the fund’s experienced team, low cost, and simple and convenient offering for investing in the global stock market.

The Wealth Shortlist also saw the addition of two global equity income funds. Troy Trojan Global Income is a relatively new fund, having been launched in November 2016, but its manager James Harries has managed global income funds since 2005. He likes large, financially robust companies that are dominant in their industry and can grow both their earnings and dividends over time. He doesn’t invest in many companies, meaning each can make a meaningful difference to returns, but it’s a higher-risk approach. We like Harries’ experience and dedication to investing in high-quality companies.

Fidelity Global Dividend, managed by Daniel Roberts, was also added to the Wealth Shortlist. Roberts looks to deliver a yield at least 25% higher than the global stock market average although there are no guarantees. He aims to do this by investing in financially strong companies that can keep increasing their dividends year after year. These can be from industries with big tailwinds like technology and healthcare, but also unfashionable ones too like utilities and telecommunications. We admire Robert’s sensible approach and willingness to look in out-of-favour areas.

We also added ASI Global Smaller Companies, which was set up by veteran manager Harry Nimmo and Alan Rowsell in 2012. Nimmo stepped back after a few years, but after Rowsell’s recent departure he’s returned to run the fund along with co-manager Kirsty Desson. They use the same approach as Nimmo’s other smaller companies funds, investing in higher-risk smaller companies they think are high-quality, growing and have momentum behind their earnings and share price. This approach has stood the test of time and we think the fund could be a good option for investing in smaller global companies with more growth potential than larger ones.

How have Wealth Shortlist funds performed?

Global funds on the Wealth Shortlist have had mixed success recently, with some delivering double-digit gains and others showing disappointing negative returns. This is to be expected though, as we deliberately choose funds from a range of different investment styles. If they all did well together, there’s a fair chance they’d all do poorly at the same time too. We prefer to build a list where different funds work well in different market conditions – that’s how true diversification works.

The best-performing global fund on the Wealth Shortlist over the past 12 months was Rathbone Global Opportunities with a 14.9% return. Like many other top-performing funds of late, James Thomson seeks out companies he thinks have excellent long-term growth prospects and currently invests a lot in the US and technology sectors. Unlike many other growth-style managers though, Thomson also dedicates a chunk of the fund to companies with lower growth expectations but that have tended to be more resilient during market turbulence. Although we’re pleased with the fund’s recent performance, we place more importance on Thomson’s strong long-term record dating back to 2003, and his skilled stock picking.

The weakest performer was Artemis Global Income, managed by Jacob de Tusch-Lec. He looks for unloved companies and aims to deliver a relatively high yield. This has led to poor performance, given this style has been out of favour. While disappointing, we think it’s important to remember that investment styles go in and out of favour. What works well or poorly now won’t always be that way. We view the fund as a useful complement to growth-focused funds.

Annual percentage growth

Growth (%) 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
Fidelity Index World 17.4 17.4 11.5 13.3 -0.9
Troy Trojan Global Income n/a n/a 6.9 18.2 -2.5
Fidelity Global Dividend 24.7 9.0 6.1 18.2 -0.9
ASI Global Smaller Companies 20.6 30.6 21.1 3.7 3.1
Rathbone Global Opportunities 15.3 19.3 18.8 14.2 14.6
Artemis Global Income 9.3 18.9 10.7 -2.0 -15.3
FTSE World 18.0 18.2 12.4 11.0 0.2
IA Global 13.6 17.8 10.5 10.0 0.6

Past performance is not a guide to the future. Source: Lipper IM *to 31/07/2020.

n/a = no data is available for this period.

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    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.

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