Top Global Equity Funds to Remain Watchful as Coronavirus Scare Increase

The economic and financial impact of the Covid-19 outbreak has reached unprecedented length and breadth and is expected to rise even further, as till now there is no full-proof measure in sight to contain it. The rising concern amongst financial experts and economists suggest that the global economy could enter a deep slowdown, and coming out of it would take a long time, as it will be difficult to restore the current level of trade activity in the market, with the disruptions in the support systems and facilities such as the supply chain structures, as well as the transport, travel and tourism sector.

Financial markets and global indices such as the Shanghai Stock Exchange of China, the FTSE 100 Index of the London Stock Exchange as well as the Dow Jones Composite Index fell steeply in the month of February 2020. After some respite in the first 3 days of March, the markets fell again, displaying high volatility, both in terms of stock prices as well as the confidence of the investors. To support and improve the confidence level of both individual and institutional investors in the United States of America, the Fed has already taken a pre-emptive measure of slashing the interest rates, with one eye on the potential negative impact of the coronavirus and one on the overall economy.

Questions have also been raised to the Bank of England’s monetary policy committee, which is responsible for taking interest rate decision in the United Kingdom, for deliberating on the potential impact of the Coronavirus to the UK economy and to cut down interest rates by at least 10 basis points. What’s been pointed is that the slashing of interest rate will stimulate the aggregate demand in the economy, rather than the aggregate supply, which will take a direct hit in case of any further developments of the coronavirus outbreak. This would mean that slashing down interest rates might create further chaos if the UK administration is not careful.

Global Equity Funds mess

It’s not only the economy and the industries which have been getting impacted by the outbreak, but global Equity Funds, as well as on certain other categories of funds too have been severely hit. It has been reported that since the beginning of this epidemic, and especially at its peak, global equity fund managers have pulled out large sums from the market, to soften the blow on markets for their investors and prevent any further losses.

The most surprising story during the period has been a large number of asset classes, which have been reported to be in the green zone since the beginning of the year, despite the whole coronavirus fiasco. Products, which are otherwise also considered extremely safe, such as the likes of fixed income, convertibles, money market funds have all been in the green while the property assets, whose prices have been volatile over the last few years due to certain problems in the industry have also been in positive territory during this period. All these asset types have been classified by financial experts as a go-to, less risky investment for investors, especially in times of uncertainty like this.

Coming back to global equity indices, US S&P 500 index has lost around 7 per cent from year to date while the FTSE 100 Index has lost close to 13 per cent in value, losing out on billions of pounds of investor capital. This has not come as a surprise to the markets as the global equities as well as equity funds have been among the hardest hit. On an average, global equity funds had lost close to 4.5 per cent since the start of the year and around 6 per cent, since the end of January 2020, at a time when global equities were on a support range, primarily due to the global geopolitical scenarios. In comparison to this, the story from the above mentioned safe haven assets has been completely different, as fixed-income securities have returned around 3.6 per cent and, while investors have also received a return of approximately 2 per cent by putting their capital in money market funds over the extent of this period. The impact of Covid-19 till now has been as per the expectations of the experts from equity and financial markets, which is basically a slowdown or steep downturn in the equity assets as well as some sort of the corporate and high yield bonds, which are considered to be relatively risker than government bonds, but also there is steep upside movement in conventional risk-free assets, such as yields from US and UK 10 year bonds.

The following is a chart for returns, by asset class, since the beginning of the current year, reflecting the above-mentioned trend of the markets and how the investors are moving from one asset class to another.

Which all equity funds have been opposing the trend?

Despite the above-mentioned chaos in the equity markets as well as the global equity funds, we have tracked down some funds, that are contra to the prevailing trend and have performed really well, primarily because of the fact that the major sector holdings of these funds have not been significantly affected. The following is a closer look of these funds, including the summary of their top company, industry as well as country holdings.

New Alternatives Fund (NASDAQ: NALFX.O)

New Alternatives Fund is the United States of America based Mid-Cap equity fund, it seeks to give its investors long term consistent returns, which is more than the return of the comparative benchmark index over a 3 year and a five-year period. The company’s Year to Date return has been reported at 11.8 per cent, while its 3-year annualised return has been reported at 15.5 per cent. The funds’ 5 Year annualised return has also been decent and has been reported at 9.3 per cent. In this period of extreme uncertainty, the New Alternatives Fund has been one of the shining stars in the global financial market. The following is the company’s dividend distribution history:

Few graphics of funds’ holding summary:

As of 31^st December 2019 (Source: Thomson Reuters)

Baillie Gifford Long Term Global Equity Fund (NASDAQ: BGLTX.O)

The funds’ primary objective is to attain consistent returns and growth by investing at least 80 per cent of its total assets in equity securities. In addition, under normal circumstances, the fund also looks to leverage growth through investments of at least 40 per cent of its total assets in securities of companies located outside the U.S. when market conditions are favourable. The funds’ annual dividend yield has been reported to be at 0.13 per cent.

Few graphics of funds’ holding summary:

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As of 31^st December 2019 (Source: Thomson Reuters)

Morgan Stanley Investment Global Advantage (NASDAQ: MIGIX.O)

The fund primarily looks to attain its investment returns by making its investments in established companies located throughout the world, with capitalisations within the range of companies included in the MSCI All Country World Index. Under normal market conditions, the fund typically invests at least 40 per cent of its total assets in the securities of issuers located outside of the United States, unless the Adviser determines, in its sole discretion, that conditions are not favourable. The Year to date total return of the fund has been reported at 4.7 per cent, the three-year annualised return stood at 18.2 per cent, while the five-year annualised return of the firm has been reported to be at 11.9 per cent.

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Few graphics of funds’ holding summary:

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As of 31^st December 2019 (Source: Thomson Reuters)

Two other funds, that have also performed exceedingly well are Invesco Oppenheimer Global Opportunities fund (NASDAQ:OGGIX) and the Baron Global Advantage Institutional Fund (NASDAQ: BGAIX.O). The year to date return of OGGIX stood at a value of 3.6 per cent, while the three-year annualised return has been reported at 14.3 per cent. Similarly, the year to date return of BGAIX stood at a value of 8.8 per cent, while the three-year annualised return has been reported at 26.7 per cent.

Comparative One Year returns of NALFX.O, BGLTX.O, MIGIX.O, OGGIX.O and BGAIX.O

(Source: Thomson Reuters) Daily Chart as on 06-March-20, before the closing of the LSE Market