The “ferocious rotation” that saw global equity markets fall sharply in the December quarter last year and then recover strongly in the first half of this year was a testing period for fund managers, when some strategies coped with the conditions better than others..
Around one-third of the active global equity funds in Morningstar’s research universe beat the index last year, according to the researcher’s latest review of the sector.
The funds that managed to avoid the worst of the December quarter fall in global equity markets benefited from holdings companies with defensive characteristics – so called “quality” stocks with stable earnings growth, high returns on equity and low leverage.
Some of the better performers during the December quarter, when the global equity market fell around 10 per cent, were Generation Wholesale Global Share, which was down 7.3 per cent in the quarter, Stewart Investors Worldwide Leaders (down 3.2 per cent), Magellan Global (down 6.8 per cent) and Talaria Global Equity (down 4.7 per cent).
Some of the funds that underperformed in the December quarter were Lazard Global Small Cap, which fell 19.1 per cent during the quarter, Pan-tribal Global Equity (down 17.5 per cent), Orbis Global Equity (down 14 per cent) and PM Capital Global Companies (down 12.9 per cent).
Funds that produced strong returns during the first half of the year include Zurich Investments unhedged global, Franklin Global Growth, MFS Concentrated Global Equity, Zurich Investments Global Thematic share, MFS Global equity trust and T Rowe Price Global Equity and Nikko AM Global Share.
There was only one fund, Nikko AM Global Share, achieved a top 10 performance for calendar year 2018 and the first half of 2019.
Morningstar says: “Nikko has managed the rotation astutely. Portfolio manager William Low and team have used their flexible investment process to build a portfolio of high quality companies that has fared better than most through the volatility.
Morningstar has upgraded four global equity funds in its latest review of the sector. Robeco Emerging Conservative Equity has been upgraded from ‘bronze’ to ‘silver’; BlackRock Advantage International Equity has been upgraded to ’bronze’; T Rowe Price Global Equity has been upgraded from ‘bronze’ to ‘silver’; and Generation Wholesale Global Share has been upgraded from ‘bronze to ‘silver’.
Morningstar confirmed nine ‘gold’ ratings: Capital Group New Perspective, iShares S&P 500 AUD Hedged, iShares S&P 500 ETF, Magellan Global, MFS Concentrated Global Equity Trust, MFS Global Equity Trust, OneAnswer SAC International Share, Platinum International Fund and Vanguard US Total Market Shares ETF.
It downgraded three funds: Antipodes Global Investment Co was downgraded from ‘bronze’ to ‘neutral’; Aberdeen Standard Emerging Companies was downgraded from ‘silver’ to ‘bronze’; and Franklin Global Growth was cut from ‘gold’ to ‘silver’.
With regard to the Antipodes funds, which is a listed investment company, Morningstar says: “We are increasingly concerned that the share prices of closed-end listed investment companies can irrationally trade at a premium or discount to net asset value, which will have an impact on overall investor returns. Since inception, Antipodes Global Investment Co has traded between a 7 per cent premium and a 12 per cent discount to pre-tax et asset value, which can have a material impact on investor returns depending on the timing of share purchases and sales.”