Exposure To Global Equities In European Funds Of Funds

by: Lipper Insight at Thomson Reuters

By Jake Moeller

Global equities funds generally pose a particular problem for fund-of- funds managers. Because of their broad based geographical exposure, they tend to be eschewed by selectors in favour of regional specific equities funds. Here, favoured countries and parochial tastes can be accommodated.

The variation between geographical equity sectors has been considerable in 2014 with asset allocators over the twelve months to 31 October 2014 benefitting considerably if they had an overweight to the U.S. and Japan (13.2% and 12.9% respectively) as opposed to say the U.K. and Russia (-0.4% and 1.3% respectively).

Table 1. 12 Month Performance of Selected Lipper Regional Equity Classifications (to 31 October 2014 in local currency)

Source: Lipper, a Thomson Reuters company.

The eclectic mix of the sector is reflected in the variation of returns of funds purchased. The best performing fund over 12 months to 31 October – HWB Alexandra Strategies Pf V 1 returned a stellar 35.6% and was purchased only by 1 astute buyer. The resource heavy funds fared less well at the other end of the spectrum with Earth Exploration Fund UI (EUR R) posting a loss of -18.8% over the same period with 7 fund buyers exposed here.

Looking at fund purchases of global equities up in October 2014 (including global income and mid and small caps for completeness), it is clear that thematic considerations influence European fund buyers considerably in this sector. The most popular fund by far with over 2% of the entire sector AUM exposure in October is M&G Global Dividend C EUR Acc. This clearly reflects the ongoing desire by investors and fund managers alike for dividend income in an ongoing low interest rate environment. This fund also produced a respectable 12% return for the 12 months to 31 October.

Other thematic funds such as RobecoSAM Sustainable Water Fund C (6 buyers) and Sarasin Sustainable Water Fund A EUR (6 buyers) have proven popular as have Pioneer Funds Global Ecology A No Dis EUR (6 buyers) and the power generation themed fund 4Q-SMART POWER which was purchased by 17 buyers.

Table 2. European Buyer’s top 25 most popular funds in the Global Equities sector

Source: Lipper, a Thomson Reuters company.

Broad based geographical exposure within the popular funds has been best represented by passive options. Lyxor UCITS ETF MSCI World D-EUR and iShares MSCI World UCITS ETF (Dist) both appear in the top 10 spots with a combined 39 fund buyers. It is possible in this instance that fund managers have sought a quick beta exposure to the market and will allocate to active funds in due course or these managers are more concerned about the general bond/ equity split within their portfolios rather than geographical differences.

Indeed, examination of the wider list of funds bought in the global equities sector in October (some 800 funds overall) reveals the prevalence for thematic funds throughout rather than broad based equities funds.