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March 12, 2010 6:36 pm

Equity investors move into overseas funds

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Rising optimism about the world economy has whet appetites for global growth funds, according to new
figures from the Investment Management Association (IMA) that show the global growth sector topped the list of the most popular equity funds sold in January.

In the first month of 2010, investors shifted money out of European, UK Equity and UK All-Companies funds, which all suffered outflows of £6m or more, according to the IMA.

By contrast, global growth funds saw net retail sales of £229m in the period. Total net sales of retail funds across all asset classes amounted to £1.8bn, up from £1.2bn in the same period the previous year.

Analysts believe concerns about the UK’s economic prospects and those of wider Europe following Greece’s financial crisis are prompting the migration away from the region.

They say UK investors are looking elsewhere for growth, as many believe China and the surrounding Asian economies will guide the world out of recession.

Tom Tuite Dalton, an analyst with Oriel Securities, argues that standard defensives such as UK and US banks and government bonds have lost “allure” and global funds are a worthy replacement.

“We continue to recommend that investors have a substantial overweight position in overseas-oriented funds, as a means of portfolio diversification, and at the same time providing investors with some insulation against further weakness in sterling,” he says.

On the list of investment trusts recommended by Oriel are Murray International, RIT Capital – the Rothschild family’s personal investment vehicle – and British Empire Securities & General Trust. Tuite Dalton said all three are poised to benefit from the currency gains that international companies are seeing, due to the sustained weakness in sterling.

Adrian Lowcock, an investment adviser with Bestinvest said: “It is difficult to determine which country will actually have the best-performing market, so a global fund is a good way to get diversified access.”

A clutch of global funds have performed well in the last year. Ignis Global Growth is up 104.5 per cent, while Axa Framlington’s Talent fund, which invests in companies run by entrepreneurs, has gained 86 per cent. Invesco Perpetual’s global smaller companies fund has risen 87 per cent in the past 12 months, outpacing the 65 per cent rise in FTSE 100.

But even global fund managers say they will have to work hard to add value this year.

Habib Subjally, head of global equities at First State, dubbed 2010 “a year of challenge”, as interest rates are likely to rise, while the impact of the end of the
UK government’s debt buy-back programme – known as quantitative easing – remains uncertain.

“The view here is that much of the good news, such as aggressive cost- cutting and improvement in balance sheets, is already reflected in stock prices, with attractive value present only in specific stock opportunities,” writes analyst Susan Sworn in a report on the global equity funds sector from S&P Fund Services.

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