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Lipper's Jake Moeller examines how European funds of funds managers used Global Equities funds in October 2014.

Global equities funds generally pose a particular problem for fund-of- funds managers. Because of their broad-based geographical exposure, they tend to be eschewed by selectors in favour of region-specific equities funds. With region-specific equities funds, favoured countries and parochial tastes can be accommodated.

The variation between geographical equity sectors has been considerable in 2014, with asset allocators over the 12 months to October 31, 2014, benefitting considerably if they had an overweight to the U.S. and Japan (13.2% and 12.9%, respectively) as opposed to, for instance, the U.K. and Russia (-0.4% and +1.3%, respectively).

Table 1. 12-Month Performance of Selected Lipper Regional Equity Classifications (to October 31, 2014, in local currency)

Month Performance of Selected Lipper Regional Equity Classifications

Source: Lipper, a Thomson Reuters company.

The eclectic mix of the sector is reflected in the variation of returns of funds purchased. The best performing fund over 12 months to October 31—HWB Alexandra Strategies Pf V 1—returned a stellar 35.6% and was purchased by only one astute buyer. The resource-heavy funds fared less well at the other end of the spectrum, with Earth Exploration Fund UI (EUR R), with seven buyers, posting a loss of 18.8% over the same period.

Looking at fund purchases of global equities up to October 2014 (including global income and mid-and small-caps for completeness), it is clear thematic considerations influenced European fund buyers considerably in this sector. The most popular fund by far (with over 2% of the entire sector AUM exposure in October) was M&G Global Dividend C EUR Acc. This clearly reflects the ongoing desire by investors and fund managers alike for dividend income in an ongoing low-interest-rate environment. This fund produced a respectable 12.0% return for the 12 months to October 31.

Other thematic funds such as RobecoSAM Sustainable Water Fund C (six buyers) and Sarasin Sustainable Water Fund A EUR (six buyers) proved popular. So did Pioneer Funds Global Ecology A No Dis EUR (six buyers) and the power generation-themed fund 4Q-SMART POWER, which was purchased by 17 buyers.

Table 2 European Buyers' 25 Most Popular Funds in the Global Equities Sector

European Buyers’ 25 Most Popular Funds in the Global Equities Sector

Source: Lipper, a Thomson Reuters company.

Broad-based geographical exposure within the popular funds has been best represented by passive options. Lyxor UCITS ETF MSCI World D-EUR and iShares MSCI World UCITS ETF (Dist), with a combined 39 fund buyers, both appear in the ten top spots. It is possible in this instance that fund managers have sought a quick beta exposure to the market and will allocate to active funds in due course. Or, these managers could be more concerned about the general bond/equity split within their portfolios rather than geographical differences.

Indeed, examination of the wider list of funds bought in the global equities sector in October (some 800 funds overall) reveals the prevalence for thematic funds throughout, rather than broad-based equities funds.

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Jake Moeller

Jake joined Thomson Reuters Lipper in 2013 as Head of UK & Ireland Research. He has over eighteen years experience as an expert in mutual fund research, fund-of-funds portfolio management and asset allocation strategies. He spent six years managing the fund-of-funds suite and guided fund platform at AIG and has been a mutual fund research specialist for Lloyds Banking Group, Towry and the Commonwealth Bank of Australia. Jake is a Chartered Member of the Chartered Institute of Securities & Investment (CISI) and a Senior Fellow of the Financial Services Institute of Australasia (Finsia).

Website: lipperalpha.financial.thomsonreuters.com/contributor/jake-moeller/

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