Where a company is domiciled is no longer such a focus for global equity managers.

Bronwen Moncrieff, Senior Investment Analyst at Zenith said “Barriers that may once have existed and encouraged the separation between developed and emerging countries are decreasing. The development of technology such as the internet, near instant access to global events and ease of travel are just a few factors that have played an important part in making the world become a smaller place. As a result, many developed market domiciled company’s now generate an increasing level of revenue from emerging market consumers, and many emerging market domiciled companies are increasing their level of exports to developed market countries.”

“The flow through impact of this change is influencing the portfolio construction approach for many managers. Where a company is domiciled is becoming less and less relevant. Research is focusing on where a company’s source of revenues or target market demand is coming from – not where a company is domiciled or listed.”

“At a fund or product level, this is influencing factors such as the choice of benchmark, and the % of a fund that can be invested in emerging markets. For the benchmark, there has been a gradual move away from the MSCI World Index to the MSCI All Country World Index, which broadens a fund’s potential investable universe by virtue of the inclusion of emerging markets. The other change has been a gradual increase in the degree a fund can be invested in emerging market domiciled companies. Funds that may have once had a restriction on holding emerging market domiciled stocks may now be allowed to hold a portion of the portfolio in emerging markets, or funds with an existing emerging market allocation limit have been increasing that limit.”

“There may come a time when you don’t need to have separate global and emerging market funds – one fund might be able to provide you with exposure to both, in fact many funds now do just that.” Moncrieff said.

Performance over the last 12 months has clearly been very difficult. The MSCI World ex Australia ($A) index generated a very modest positive return of 2.3% for the 12 months ending 31 July 2012. The majority of regions have experienced declines.

The financials sector continued to post negative returns and the energy and materials sectors have suffered with the decline in resource demand and commodity prices. On the positive side, sectors such as consumer staples, consumer discretionary, healthcare and technology have all fared well.

Certain investment styles (core, value, growth for example) are suited to different market environments, and it is fair to say the market environment has generally been tough for all managers. However, for this review, it was the value managers that generally outperformed their core and growth style counterparts over the short, medium and long-term (5 years).

Zenith’s International Shares Sector Review represents the largest sector review undertaken by Zenith. Of the 59 global, regional and specialist funds that undertook the full due diligence process, 17 funds achieved Zenith’s top rating.

Zenith’s Highly Recommended Funds
* Aberdeen Asian Opportunities Fund
* Aberdeen Emerging Opportunities Fund
* Arrowstreet Global Equity Fund
* Arrowstreet Global Equity Fund (Hedged)
* Goldman Sachs International Wholesale Fund
* IFP Global Franchise Fund
* IFP Global Franchise Fund (Hedged)
* Magellan Global Fund
* MFS Concentrated Global Equity Trust
* MFS Fully Hedged Global Equity Trust
* MFS Global Equity Trust
* Platinum Unhedged Fund
* Walter Scott Global Equity Fund
* Walter Scott Global Equity Fund (Hedged)
* Zurich Investments Global Thematic Share Fund
* Zurich Investments Hedged Global Thematic Share Fund
* Zurich Investments Unhdg Global Thematic Share Fund

The following new funds were added to the Recommended List following the completion of due diligence for this sector.

Fund Name/New Rating
* Altrinsic Global Equity Fund/Recommended
* Aubrey Global Conviction Fund/Recommended
* Fidelity China Fund/Recommended
* Franklin Global Growth Fund/Recommended
* Martin Currie Emerging Markets Fund/Recommended
* MFS Concentrated Global Equity Trust/Highly Recommended
* MFS Fully Hedged Global Equity Trust/Highly Recommended
* Schroders Global Quality Fund/ Recommended

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