Investment researcher Morningstar has awarded gold stars, its top rating, to three global equity funds – Magellan Global, MFS Global Equity Trust and MFS Concentrated Global Equity Trust.
In reports issued last week, Morningstar highlighted the strengths of both managers in protecting investors from the full brunt of market volatility.
Describing Magellan Global as “one of our best picks”, Morningstar says the manager has a highly disciplined approach to selecting a mix of high-quality growth stocks and lower volatility defensive companies.
Led by Hamish Douglass, the fund has a skew to US domiciled multinationals, IT and e-commerce companies, and defensive consumer franchises. Top stocks include Apple, Microsoft, Amazon, Facebook and JP Morgan Chase.
Since the fund’s launch in 2007 it has produced an average return of 11.3 per cent a year, compared with 5.3 per cent a year for the MSCI World Ex-Australia Index over the same period.
Over the past three years the fund has produced an average return if 10.6 per cent a year, compared with 10.1 per cent a year for the index.
Over its life, the fund has achieved “downside capture” of 61.2 per cent – a measure of the degree to which a fund falls relative to a fall in the index. In other words, investors in the Magellan fund suffer only two-thirds of the loss suffered by investors in the index.
“Its ability to keep up with strongly rising markets while providing downside protection during periods of volatility sets this strategy apart.” Morningstar says.
The fund has an annual fee of 1.35 per cent and a performance fee of 10 per cent of any outperformance over the dual hurdles of the MSCI Index and the Australian government 10-year bond yield.
Morningstar says the base fee is expensive and, given the addition of a performance fee, should be lower.
The MFS funds are managed by Roger Morley, who has had a “long and successful” tenure at the company, Morningstar says. Morley’s co-manager David Mannheim retired last year and Morningstar says the transition has been handled well.
MFS’s process is based on “fundamental stock and industry research which prioritises companies that can grow earnings sustainably.”
The team targets companies with solid industry positions where substantial barriers to entry exist, as well as strong management teams with well-defined business strategies. It has a preference for the healthcare and consumer sectors.
“We expect relative performance to be at its best during tougher equity markets,” Morningstar says.
Since inception in 1997, the MFS Global Equity Trust has returned an average of 7.7 per cent a year, compared with 5.6 per cent a year for the MSCI World Ex-Australia Index.
Over the past three years the fund has returned 9.7 per cent a year, compared with 10.1 per cent for the index. It lagged the index last year with some stocks, including Bayer and Coty, underperforming.
Its downside capture ratio is 85 per cent.
MFS Concentrated Global Equity Trust has returned an average of 11.9 per cent a year since inception in 2008. The index has returned 7.6 per cent a year over the same period.
Over the past three years the fund has returned an average of 9.4 per cent a year, compared with the index return of 10.1 per cent. The fund’s downside capture ratio of 87.5 per cent.