International investing just got a lot more complicated
Global sector funds may be the flavour of the month for funds management marketeers, but there is a limit to the number of sectors that can be realistically used.
Sector specific funds have been the killer products of 2000. About half a dozen of Australia's biggest fund managers launched technology funds earlier this year to capitalise on the hunger for these funds by Australian investors. Funds from Colonial First State and BT have collectively raked in more than $400 million from scratch in a year that has seen a marked fall from grace for technical stocks around the world.
Other global sector funds, such as healthcare and consumer brand name, funds
However, Invesco's UK-based investment director Richard Beggs warns managers contemplating rolling out global funds in sectors across the board that there is often no correlation between a sector in one region and another.
"Retail stocks, for example, have very little correlation across the regions," Beggs says. "In fact only a handful of sectors can be analysed around the world."
Other sectors that have low correlation around the world include construction, food and small to medium sized countries.
However, Beggs acknowledges that regional funds are becoming less relevant in an increasingly global world economy.
"The best companies are not in any one country," Beggs says. "So it is becoming increasingly difficult to add value by making bets on regions."
And the size of some of the world's leading companies has blurred the lines between making bets on countris and making bets on sectors or stocks.
"For example, if you buy Nokia, you are buying a large proportion of the market capitalisation of Finland's stock market. The question you ask is are you buying Nokia the company, Finland the country or Nokia the telecommunications leader."
However, companies like Invesco will continue to make asset allocation decisions based on regions. At the moment, Invesco is taking a benchmark stance on the US but is slightly overweight in European funds based on recognition of present opportunities.
"The European economy has massive opportunities at the moment if government and business do what they promise to do," he says.
"Tax reform is not quite there but has started. Earnings growth is not yet robust but is expected to be strong."
Recommended for you
With the final tally for FY25 now confirmed, how many advisers left during the financial year and how does it compare to the previous year?
HUB24 has appointed Matt Willis from Vanguard as an executive general manager of platform growth to strengthen the platform’s relationships with industry stakeholders.
Investment manager Drummond Capital Partners has announced a raft of adviser-focused updates, including a practice growth division, relaunched manager research capabilities, and a passive model portfolio suite.
When it comes to M&A activity, the share of financial buyers such as private equity firms in Australia fell from 67 per cent to 12 per cent in the last financial year.
