One way to dampen the effects of national politics, trade wars and Brexit negotiations on your portfolio is to make sure your money is spread across borders and not riding on a coin toss in any particular region or sector.
Global equity funds offer investors exactly that, often holding large, high quality companies from around the world with a view to being able to weather any storm, wherever it is.
Here are three of the most popular global funds on fidelity.co.uk this month:
Launched in 2010 with the aim of delivering returns unhindered by complicated trading strategies and possible corporate turnaround stories, the Fundsmith Equity Fund has grown in popularity and in size, currently sitting at £17.5bn.
The foundation of manager Terry Smith’s style lies in selecting high quality companies, with strong brands, capable management and high barriers to entry for their products and services.
If these firms can demonstrate high rates of return on capital, through increasing brand strength or cornering new markets, Smith will look to hold them for the long term. With the mantra ‘don’t just do something, sit there’ at the heart of the process, Smith keeps trading costs to a minimum by holding a concentrated portfolio of around 20-30 of these names, making a conscious effort to avoid chopping and changing companies in the fund.
While the fund started out life with a heavy tilt towards consumer staples and still holds more in the sector compared to many of its peers, the manager has added technology and healthcare names to the core holdings. PayPal, Microsoft and Intuit are now top ten constituents along with recently-added Facebook.
Healthcare appliance manufacturer Stryker epitomises Smith’s approach. The company makes and distributes medical equipment such as catheters, implants and joint replacements, as well as ‘small ticket consumer non-durables’ as Smith puts it, like single-use syringes. Once these have been used, they need to be discarded and re-ordered, providing the dependable business the manager likes to see.
“Our feeling is - if you own a piece of a wonderful company, and we think every company we’re invested in is a fantastic business, why would you ever sell?” says Nick Train, co-manager of the Lindsell Train Global Equity Fund. In running the fund alongside Michael Lindsell and James Bullock, Train looks for business brands and franchises with strong evidence of durability and relevance to customers for decades to come.
A similar attitude to Smith, Train makes it clear that watching daily share price gyrations holds no place in his long-term strategy. Rather, the manager focuses on owning a part of the underlying businesses in the portfolio who show the ability to reinvest profits in their own companies, generating further long-term returns for shareholders.
Both students of the Buffett school of investing, Smith and Train look for unique businesses in control of their sector - a characteristic that leads to the large cap space, especially in the sector setting Train apart from many peers; beverages.
The fund names PepsiCo, Diageo and Heineken among its top holdings, with the manager pointing to the strong stable of brands underneath each, as well as their vast global reach.
This focus on world-leading brands often means contending with share prices at the top end of the spectrum, so will Train always pay up for quality? “Within reason,” he says, “with a true investment horizon you can at least continue to hold, if not buy more of these extraordinarily rare companies.”
And even if they’re expensive? “Frankly who cares? You shouldn’t care. You should care about your investing assets being allocated to things that are going to last, that won’t be obliterated by the next economic downturn and just may survive the period of technological transition that we are going through.”
A brief look at the top holdings in James Thomson’s Select 50 fund gives a clear indication of the manager’s belief in the future of tech. Despite share price pullbacks last year, the manager is happy to keep around a quarter of the fund exposed to the sector, making clear selectivity and diversification are key.
Thomson explains: “Tech is mission critical for some businesses and this perhaps is what has changed over the last decade. Being at the leading edge of new technology and staying relevant for the next wave of customers really is a top priority for every corporate CEO.”
This sustainability in customer proposition that Thomson looks for in the sector is no accident - it is very much a part of his rigorous, considered approach to identifying good quality companies for the fund he has run for 15 years.
Other ingredients in the manager’s ‘secret sauce’ include easy to understand businesses, companies growing quickly but sustainably, and prudent management teams with great vision for the future. He seeks out companies who are shaking up their industry but with positive long-term prospects rather than short-term fads.
A good example here is Abiomed, one of the fund’s top names. The company is a pioneer in innovative healthcare technology and counts the world’s first total replacement heart and the world’s smallest heart pump among its achievements.
Echoing Train, Thomson is pragmatic about paying a premium for shares in high quality businesses. He explains, “When you invest in a growth fund that’s probably one of the realities; growth rarely comes cheap. So, we have to balance the valuation of the business with the growth prospects. We don’t want to throw money into just anything, we have to believe the valuation is reasonable for the growth prospects but we are willing to pay up if we’re getting good quality sustainable growth.”
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities or funds should not be construed as a recommendation to buy or sell these securities or funds and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.