The best fund has risen by almost 90% (Fundsmith Equity), the worst has fallen by 32%, a difference of more than 120%. The average for the sector is +35%.
So why has the sector performed poorly? Too much choice is one issue. Those funds with precise mandates, where choice is considerably reduced, have performed better.
But there is a wide range of mandates that influence the sector’s average performance. For example, energy and resource funds have performed poorly and pulled the average down.
And, perhaps more importantly managers are finding it increasingly hard to maintain consistency of performance.
In the past two years, there has been a 50% turnover in the top 20 best-performing global funds on a three-year basis. Our analysis, which I have run for more than 12 years, can be an indicator of changing performance within sectors, and it is currently suggesting a long-term change of leadership is under way.
Given leadership has been quite consistent since the financial crisis, a change would not be a surprise.
It also reflects the positioning of the managers who, over time, can drift towards becoming more concentrated. While Global has the largest stock universe of any sector, drift is still apparent.
And, while it cannot be argued that the sector’s long-term average performance has been anything but disappointing, there are some outstanding funds, fully deserving of investors’ attention and investment.
They tend to have precise mandates and processes, which narrows their universe and weeds out poor stocks.
That said, it is important to be aware of the prevailing mood in the market, which has also favoured these investment styles. The debate is whether the global macro will continue to favour investment approaches that have performed well to date or whether the tide is turning.
Our analysis suggests the latter. Consequently, less than half the top 20 global equity funds today may be top 20 in two years’ time: a 50% turnover, perhaps more. But this could be a storm in a tea cup, of course, with ‘business as usual’ returning soon enough.
On the next slides are nine funds worthy of consideration.