Morningstar wraps up global equities strategy reviews
Morningstar today released its Sector Wrap-Up for global equities funds, covering 50 global large-cap strategies and eight global small-cap strategies.
Morningstar does not charge or accept payment from fund managers to participate in qualitative research reviews.
Key findings
We gave two of the 50 global large-cap strategies we assessed the highest-possible Morningstar Analyst RatingTM of Gold: MFS Global Equity and Platinum International. We designated 10 offerings Silver, 16 Bronze, and one Negative (AMP Capital/AllianceBernstein Global Equity Growth). Only one global small-cap strategy achieved an Analyst Rating higher than Neutral: Dimensional Global Small Company (Bronze).
Many Australian investors maintain a home country bias in their portfolios. They can hardly be blamed: the local sharemarket and Australian dollar have strongly outpaced their global brethren for more than 10 years. Now may be a good time for investors to consider tempering these local tilts, however.
The global shares asset class provides greater exposure to stocks that will participate in the next phase of global capital growth and, as ever, the risk mitigation benefits of currency diversification cannot be ignored.
Morningstar stock research suggests that recent surges in global sharemarkets and the associated rise in stock valuations shouldn’t discourage investors and advisers from diversifying portfolios.
So-called ‘expensive defensives’ have garnered much attention over the past year. Some commentators claim that these large consumer-oriented names are overpriced, but we suggest that the criticisms lobbed at these stocks and the funds that hold them are overblown. This debate also helps remind us of some key principles for good manager selection.
A major criticism of global equities strategies is that they offer little income. Our examination of the data indicates that this is a fair accusation. As a result, investors in retirement or otherwise depending on the income generated by their investment may have good reason to favour strategies with higher income generation potential.
Asset flows since the global financial crisis suggest that investors have little time for global small-cap investing. We think there are good reasons to look down the global market-cap for opportunities, including diversification.
However, using a flexible large-cap strategy may be the best way to do this, in part because the potential for increased volatility and high correlation with large-cap equities mean that most investors only need a small dose of global small-caps.
