The best performing share funds
The adage “past performance is not an indicator of future performance” is an important warning. Just because something has done well in the past is no guarantee that it will do well in the future.
However, if an investment fund or product has performed poorly, it is hardly a ringing endorsement to say it could do well in the future. So, I think investment performance is one of the criteria to use in assessing different products or funds.
Here is my assessment of the best performing international share funds traded on the ASX. I have focussed on international share funds because managed funds are probably the easiest vehicle for aussie investors to build a diversified exposure. Also, the research says that we are “under-invested” when it comes to accessing the realm of investment opportunities offshore.
Each of the managers selected embraces an “active” management style (that is, they pick the stocks/sectors/investment strategies), because this is the only way to generate outperformance. In contrast, passive tracking index ETFs (exchange traded funds) will generate index performance, less the management expense. Nothing more, nothing less.
1. Magellan Global Fund (ASX: MGOC, MGF, MHG)
The largest ASX listed fund manager, Magellan has been the “go to” manager for most financial planners when it comes to overseas investments.
The $15bn Magellan Global Fund is a specialised and focussed long-only global equity fund. It has a relatively concentrated portfolio of 20 to 40 high quality securities. It looks for companies that are able to sustainably exploit competitive advantages to earn returns that are in excess of the cost of capital. It is not a value manager, but is focussed on fundamental business value.
Recent performance has been disappointing, with the fund returning -4.3% for the year to 28 February compared to the index return of positive 7.7%, making a relative underperformance of 12.0% for the 12 months. But long term performance is still strong – plus 15.1% pa for 10 years compared to the index’s 12.5% pa - an outperformance of 2.6% pa. Since inception in July 2007, the outperformance is even better at 4.4% pa.
We can forgive one bad year, where Magellan went defensive by increasing its weighting to cash and some of its tech and consumer discretionary picks didn’t fare too well. But the jury is watching closely. .
MGOC are units in an “open class” quoted managed fund – meaning that the fund can grow or contract in size as new investors join the fund or as others leave. Magellan engages professional “market makers” to help ensure that the fund is trading on the ASX very close to its underlying NAV (net asset value). There are also “closed class” units that trade under the ASX code MGF. Depending on the discount, these can be a more attractive way to invest in the strategy - last reported discount was 11.8% as of 26 March 2021.
In addition to MGOC and MGF (which are not currency hedged), there is a currency hedged version of the strategy that is listed on the ASX under the ticker MHG.
2. WCM Global Growth Limited (ASX: WQG and WCMQ)
WCM is a California based asset management firm with AS107bn of funds under management. Locally, its quality global growth equity strategy can be accessed through a listed investment company (WQG) or quoted managed fund (WCMQ).
The Quality Global Growth Strategy looks for companies that satisfy two key criteria: firstly, an expanding economic moat, and secondly, a corporate culture that supports the expansion of the moat. A relatively concentrated portfolio of 20 to 40 stocks is identified, with about 67% domiciled in the Americas, 18% in Asia/Pacific and 14% in Europe. The strategy is not currency hedged.
Returns have been very strong. Over the last 10 years, the strategy has delivered a return (after fees) of 18.3% pa, 5.8% pa higher than the benchmark. Over the last 12 months to 28 February, the WQG portfolio returned 22.4% for an outperformance of 12.3%.
Depending on the discount (if any) to NTA (net tangible asset value), the listed investment company (WQG) can be a more attractive way to invest in the strategy than the open ended managed fund, WCMQ. There was a 1.9% discount to NTA for WQG on the last reporting date of 26 March.
3. Fidelity Global Emerging Markets Fund (ASX: FEMX)
Also a quoted managed fund, FEMX from Fidelity invests in a portfolio of 30 to 50 emerging market securities that are positioned to generate returns through market cycles and have demonstrated a track record of strong corporate governance. Companies from China top the list at 25.8%, followed by Taiwan at 16.2%, India at 12.7%, Hong Kong at 7.7% and South Africa at 7.4%. From a sectorial point of view, information technology at close to 23% leads consumer discretionary at 20%. There is no exposure to health care, real estate, utilities or energy.
For the year to 28 February, FEMX returned (after fees) 20.2%, 6.9% ahead of the emerging markets benchmark. Since inception a little over two years’ ago, it has returned 23.6% pa for an outperformance of 8.9% pa.
4. Platinum Asia Fund (ASX: PAXX)
PAXX, a quoted managed fund, allows investors to gain exposure to a diversified portfolio of Asian (excluding Japanese) companies across the sectors. As a “value” manager, Platinum aims to provide capital growth over the long term by providing exposure to undervalued listed securities.
The underlying portfolio is typically 50 to 100 securities, from companies domiciled in China, Hong Kong, Taiwan, Korea, Malaysia, Singapore, India, Thailand, Indonesia, Philippines, Sri Lanka, Pakistan and Vietnam. Currency exposures are actively managed.
Over the 12 months to 28 February, the portfolio (after fees) returned 35.3%, 17.1% ahead of its benchmark. Since inception in September 2017, it has returned 14.9% pa, an outperformance of 3.0% pa.
5. Morningstar International Shares Active ETF (ASX: MSTR)
The Morningstar International Shares Active ETF invests primarily in the Morningstar International Shares (Hedged) Fund). The latter invests in resilient, undervalued companies and comprises a well-diversified portfolio of approximately 350 securities. The fund is hedged through a passive currency overlay.
MSTR is a relatively new quoted managed fund. The underlying fund returned 25.4% for the year to February (an outperformance of 1% compared to the hedged benchmark), and over 7 years, has exactly matched the performance of the benchmark at 10.3% pa.
6. Hearst & Minds Investments Ltd (ASX: HM1)
Strictly more than an international share fund (currently 73% international, 27% Australia), the Hearts & Minds listed investment company (HM1) has been a star performer on the ASX. So much so, it is currently trading at a premium of 13.5% to its NTA (as of 26 March).
The listed investment company is a concentrated portfolio of long only positions in 25 to 35 Australian and globally listed securities based on the highest conviction ideas from leading fund managers. Fees that would normally be paid to the investment managers are donated by the company to leading Australian medical research institutes.
It is a ‘badge of honour’ with some fund managers to be invited to participate, and the performance since listing in November 2018 has been very strong. In the 12 months to February 2021, the portfolio returned 34.5%.
Important Disclosure: I am a Non-Executive Director of WCM Global Growth Limited (WQG).