As investors are increasingly allocating assets to global equity funds, new data from Numis reveals, many funds have struggled to keep up with their benchmark over the long term.

Recent flow data for global funds from the firm shows that Global was the most popular regional equity category in the first ten months of 2020, with £4.5bn of net inflows.

However, only 20% of global funds have managed to beat the FTSE World index over five years, according to Morningstar data. Furthermore, looking at annualised returns over ten years the data showed that just 18% managed to outperform the broader market.

A look at the Investment Association Global sector shows a similar result, with the majority (69%) of global funds lagging over five years. The same proportion also fell behind its index over ten years, although over the last 12 months, 50% of vehicles have managed to outperform their benchmarks. 


According to Nick Wood, fund expert at Quilter, much of the struggles in performance by global funds has been as a result of the performance seen in the US.

"We've met many fund managers who have struggled to justify having two thirds of their portfolio in the US when they are meant to be investing globally," he said.

"As a result, these managers have missed out on some of the remarkable gains we saw from the handful of technology companies in the S&P 500 by being underweight and have subsequently struggled to beat their benchmark.

"Investing in regional or country specific funds brings a number of benefits, as you will likely be trusting your money with someone who has specialist regional knowledge. Investing in somewhere like Japan or emerging markets is a skill in itself, as the language and the way things are done are of vital importance.

That said, Wood does believe that for some investors, global funds may still represent an attractive opportunity to access companies considered best in class.

"All countries and regions have their strengths and weaknesses, but with a global mandate, the fund manager can pick the best from each region. Perhaps that's technology from the US, robotics from Japan, luxury goods from Europe, and so on.

"Furthermore, for investors in global funds, asset allocation is taken care of by the managers you invest with. In theory they should go where the opportunities lie, and so your asset allocation will be constantly evolving and moving towards the most attractive markets."

This article was first published by our sister title Investment Week

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