The MPS team at LGT Vestra explain why in a globalised market place, unconstrained is the way to go.
'Across the world, the political tectonic plates continue to move underneath us. And we know about it faster and from a more personal perspective than ever before. The influence of social media on the news is just one fundamental change reflecting so many trends of our global world: the speed and immediacy of communication, the interconnected nature of society and the resultant momentum created.
Some investors argue that these three elements have made fundamental stock picking less relevant because information is ubiquitous and herd mentality is more visible. Other investors also argue that in such an environment, where lemmings follow the trends, by truly understanding the implicit value of a company you can see clearly when mispricing occurs. Our portfolios are positioned to capture both views through their construction.
We look at the world from an international macroeconomic perspective and as the bull market has charged ever onwards, within the model portfolios we have purposefully segregated a portion of the portfolio within the equity bucket and have labelled it our ‘global’ exposure. The funds that sit in this sleeve of the portfolio are unconstrained by geography, much like the companies themselves in an ever more globalised market place.
Currently we have five funds in the global equity bucket, ranging from Fundsmith – the omnipresent defensive large cap global equity fund – to the L&G Global Technology Index Trust – a passive fund that tracks the largest technology companies in the world.
The fund managers of Fundsmith and River & Mercantile World Recovery are very much bottom-up, fundamental stock pickers and contrast markedly to Jacob de Tusch-Lec who runs the Artemis Global Income fund and formulates far more of his portfolio bias from his macroeconomic views.
The Lazard Global Listed Infrastructure fund is much more of a thematic play benefitting from the increase in inflation across the developed world over the past year and the hugely trumpeted promises of government infrastructure spending. The blend of these different investment styles, sector styles and implementation styles is crucial to ensure diversification even within one element of the overall portfolio.
Aside from the Artemis Global Income fund, added to portfolios over the summer, all of these global funds have been held in the model portfolios since the start of the year and have produced stellar performance. Year to date, each of the four funds have returned at least 18%, with the L&G Tech fund up 28%.
The Lazard Global Listed Infrastructure and R&M World Recovery each have low correlation to the other funds in the global equity sleeve. We do not rely solely on global equity funds for exposure to companies based outside the UK, and we make great use of individually focused funds on regions or countries to take high conviction views on specific geographies.
As at the end of October 2017, the model portfolios had a total AUM of £2.1 billion and are the most widely available range of model portfolios offered to a UK adviser. Over the past three years, the balanced portfolio has returned 9.8% on an annualised basis and last month won the Citywire Wealth Manager Investment Performance Award for best balanced strategy, reflecting the peer-group beating performance of the portfolio.'