Top Funds for Exposure to Global Champions

Amid volatile markets and record gold prices, investors may find opportunities in global blue-chips whose underlying businesses have not eroded in the downturn

Morningstar.co.uk Editors 11 August, 2011 | 6:18PM
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Being investors in a bear market can mean several things. Some could be making cautious portfolio choices driven by the overarching market fear and gloom, while others bet on bourses slipping even further and try to profit from this trend. The latter strategy is often credited with the origin of the term bear market – middlemen in the sale of bearskins would sell skins they have not purchased yet, hoping the future cost of “assets” or skins would drop below their retail prices.

A less pessimistic investor, however, may chose to read the current market downturn as an erosion of faith rather than an erosion of company fundamentals. Such an investor would look to pick up companies whose solid fundamentals could eventually help them recover their stock market losses.

Large cap companies have largely taken cautious action by both repairing their balance sheets following the 2008/2009 market collapse and sticking to a conservative expenditure and investment pattern. Brook Sweeney, consultant with Morningstar Associates Europe, explains that though this process may have been bad for economic growth, it’s a dynamic that has been good for corporate cash flows.

Further, one can expect that such large, recognisable multinationals, suppliers of essential products with healthy cash flows, will continue to feed demand, says Sweeney. Providers of consumer staples, such as Sainsbury (SBRY) or Coca-Cola (KO), or pharmaceuticals firms–despite the challenges of soft consumer demand or generic drugmaker competition, should always find their goods in demand simply because people need to eat and stay healthy.

With headline markets tumbling 10% or more in recent trade, and individual company valuations not at extreme levels to begin with, the present could be an opportune moment to get into global large-caps, says Sweeney. Investing in companies with traditionally-high dividends, such as Vodafone (VOD), International Power (IPR), AstraZeneca (AZN) or GlaxoSmithKline (GSK), could yield income that is markedly more attractive than the current savings rates, he adds.

To hedge against lingering market risks in developed markets, as well as allow active fund managers maximum freedom to select an outperforming region, sector and company, investors may want to consider global, rather than regional or single-country, large cap-funds, Sweeney adds.

Morningstar’s Fund Screener tool helps explore this investment thesis. Below, we’ve screened the Morningstar Global Large-Cap Equity Blend category for funds that carry a Morningstar Analyst Rating of either Elite or Superior. The largest five funds, as measured by total assets, and excerpts from our analysts’ research reports are listed below. This is by no means an exhaustive list: find funds across our rating spectrum using our Fund Screener. Subscribe to Morningstar Premium to read the full analyst reports.

SKAGEN Global Qualitative Rating: Superior
Now under the leadership of Kristian Falnes and a new team, SKAGEN Global is still a worthy option. Depending on the investor's overall risk tolerance, the fund can be used as either a core holding or a supporting player.

Aberdeen Global World Equity Qualitative Rating: Superior
This fund stands apart from the crowd as a solid choice. We see management’s willingness to deviate from the crowd as a positive and it differentiates the fund from a competitive peer group. Although this approach can hurt the fund at times, the team’s strategy has produced consistent results and the fund ranks in the first quartile over both three and five years. This fund is suitable as a core holding for global equity exposure.

Newton International Growth Qualitative Rating: Superior
Newton's themes remain in place for the long term but manager Jon Bell dictates the portfolio's aggressiveness, making the fund susceptible to bouts of underperformance if the manager's stance differs significantly from prevailing market forces. The fund manager’s relatively defensive positioning hindered the fund's returns in his initial years, with a portfolio of well-capitalised growth stocks that lagged leveraged peers'. This fund can play a core portfolio role.

Fidelity WealthBuilder Qualitative Rating: Superior
We believe Fidelity Wealthbuilder is exceptionally good value for exposure to global equities. The fund benefits from an experienced manager and a well resourced team and its price is extremely competitive for a global fund of funds. This offering can play a core portfolio role.

Franklin Mutual Global Discovery Qualitative Rating: Superior
The fund’s performance history reflects the management style. It offered better investor protection than the rest of the category during the 2007-08 market correction, but lost ground in relative terms in 2009. Over the long term, however, investors tend to come out on top. The fund can be used as a supporting player, offering diversification for Europe- and Asia-based investors.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Morningstar.co.uk Editors  analyse and report on shares, funds, market developments and good investing practice for individual investors and their advisers in the UK.