The combined universe of funds investing globally into smaller companies and large caps gained an av...
The combined universe of funds investing globally into smaller companies and large caps gained an average of 11.2% over the year. Though, as with other regions, small-cap funds outperformed large caps, the differential was much narrower between these categories. Unlike the other regions covered in this analysis, the best performing funds were actually in the equity Global sector - the top smaller companies fund was ranked tenth.
In the latest quarterly update for global equities (dated November 2004), Standard & Poor's fund analysts reported on the fears that higher energy prices could determine the ongoing global expansion and lower corporate profits and consumer spending provided little incentive for investors to pump new money into stocks.
Many regions (with the notable exception of Europe) have been exposed to increasing interest rates during the last year, though rates are still relatively low. Oil prices have also been an important factor this year, with continuing concerns regarding whether there will be any ongoing impact on corporate earnings due to higher oil prices.
In this context, the sector report noted that there seems to be a consensus in the fund management industry that investments in energy can still provide good value. Most fund managers interviewed are continuing to hold an energy overweight based on increasing global demand, ongoing supply disruptions and falling inventories. There is also the expectation that high oil prices will persist along with attractive opportunities in individual companies. The growth and blend managers tend to invest in "secular-growth stocks" which exhibit a solid long-term growth outlook.
One of the better performing funds in the sector, the Investec GSF Global Strategic Value fund, which is A-rated by Standard & Poor's, gained 25% over the period. The fund has a longer horizon than the group's standard global equity funds and uses a bottom-up approach. The fund has a distinct value tilt, which comes from the search for cheap companies with improving operating performance. This fund has seen a lot of change during the year, as the fund manager changed in July 2004 when several senior personnel left Investec. The new manager, Mark Breedon, has a competitive long-term record, and this, along with the backing of a successful global equity process, means that the fund has been assigned an A-rating.
Another high ranking fund of note in the sector is the ING Invest Global High Dividend fund, which has been assigned an AA-rating by Standard & Poor's. The fund gained 21.8% over the year, following on from 24.8% the year earlier. According to the ratings report for the fund, it only invests in dividend-paying companies and aims to build a portfolio yielding at least 150 bps above its benchmark. Several screens are used to assess companies, including one which assesses the dividend in terms of sustainability and growth. Fund analysts assigned its AA rating on the back of a highly disciplined approach and strong resources.
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