One of the most notable features of Fidelity’s list of best-selling ISA funds this year is that seven of the top ten are all global mandates. It is a popular option because it offers an easy way to get an internationally diversified portfolio.
For some investors, a single global fund might be sufficient to give them the overseas equity exposure that they want, but if they need more than that it would be sensible to make sure that there is very little overlap between them. A good example would be the pairing of Fundsmith Equity and Fidelity Global Dividend.
A complementary combination
Fundsmith Equity invests in large, well-established companies from around the world that have high quality businesses, which can maintain a significant level of profitability. They typically have advantages that are difficult to replicate, do not require significant debt and are resilient to change.
Since inception in November 2010 the fund has built-up an exceptional track record, even though it has underperformed the MSCI World Index in each of the last three calendar years. This article on manager Terry Smith’s annual update provides more details on the positioning and strategy.
Fidelity Global Dividend offers a defensive, high-quality exposure to income paying shares from around the world. Manager Dan Roberts looks for companies with healthy yields that are supported by rising levels of earnings and that have the potential for capital growth.
The income units currently have a distribution yield of just over 4%, which would be tax-free when held in an ISA. Please note this yield is not guaranteed. This would become even more attractive if interest rates start to come down, hence this recent in-depth look at it.
Active alternative
Another actively managed best-seller is Rathbone Global Opportunities, which is closest in style to Fundsmith Equity. It invests in the developed markets, with the managers looking for innovative and scalable businesses that are growing fast and shaking up their industries.
They believe that for a stock to be successful it has to offer something that others can’t match. It must be easy to understand, different to its competitors, durable to change and difficult to imitate, as well as having the resources to grow rapidly.
Rathbone Global Opportunities has a concentrated portfolio of 54 stocks with the largest allocation being the US at 68.95%. Over the last five years it has comfortably beaten the average return from the sector and is ranked in the top quartile of performers1.
Two passively managed options
The other way to diversify internationally is to use an index tracker, which aims to replicate the performance of a global benchmark at a considerably lower cost than an actively managed alternative. There are two such funds on our list of best-sellers, with both being dominated by the US that accounts for around two-thirds of the assets.
Fidelity Index World is the most popular option of all. It tracks the MSCI World benchmark, which measures the performance of large and mid-cap stocks across 23 developed markets. The fund has ongoing charges of just 0.12% and over the last five years has generated an annualised return of 13.3%.
It is similar to the Legal & General Global Equity Index Fund that aims to replicate the performance of the FTSE World benchmark. This includes both the developed and emerging markets, although the allocation to the latter is very small by comparison. It has ongoing charges of 0.15% and has produced a five-year annualised return of 12.8%.
| (%) As at 31 March |
2019-2020 | 2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 |
|---|---|---|---|---|---|
| Fundsmith Equity | 0.8 | 29.7 | 9.3 | 2.2 | 15.3 |
| Fidelity Global Dividend | 1.5 | 21.4 | 8.1 | 4.8 | 12.3 |
| Rathbone Global Opportunities | 3.6 | 39.5 | 9.0 | -6.6 | 25.2 |
| Fidelity Index World | -4.1 | 37.2 | 17.4 | -3.5 | 24.0 |
| L&G Global Equity Index | -6.6 | 39.1 | 15.6 | -3.0 | 23.0 |
Past performance is not a reliable indicator of future returns
Source: Morningstar, 31.3.19 to 31.3.24, bid to bid with net income reinvested in GBP. Excludes initial charge.
Source:
1 Rathbones Asset Management, 29 February 2024
