Funds from Invesco, JPMorgan, Rathbones and Baillie Gifford, among others, make for compelling pairings for exposure to global equities, emerging markets and Japan, according to Hargreaves Lansdown analysts.
While investors often think about diversification in terms of asset classes, holding different styles of funds, such as growth and value, can also balance exposures.
Value funds tend to perform best in weaker economies or when economies are recovering from recessions, while growth companies tend to outperform when interest rates are lower because it’s cheaper for them to borrow to finance expansion.
Kate Marshall, lead investment analyst at Hargreaves Lansdown (HL), said: “Active funds with a distinct style will naturally go through periods of underperformance when their style is out of favour.
“The point is they perform well at different times, offering true diversification.”
Global equities
For investors hoping to diversify their exposure to global markets, Marshall highlighted the Rathbone Global Opportunities and the Lazard Global Equity Franchise funds.
Managed by James Thomson, Rathbones Global Opportunities is a quality growth fund, targeting companies with strong competitive advantages which can grow their earnings over the very long term.
“James Thomson is one of only a few global fund managers to show they can pick great companies and perform better than the broad global stockmarket over the long term,” HL analysts said.
Since being appointed to the fund in November 2003, the strategy has delivered a 1,208.6% total return, compared to an IA Global sector average of 579.7%, according to FE fundinfo data.
“His success can be put down to a straightforward, disciplined approach, and a willingness to view the world a little differently,” analysts said. “He looks for easy-to-understand businesses that can grow to dominate their industry and defend themselves from competition.”
By contrast, Lazard Global Equity Franchise is a more value-focused offering, targeting competitive companies with robust balance sheets.
While the fund has underperformed its MSCI World benchmark by 120 percentage points since launch, the strategy’s value approach means it will look significantly different to Rathbones more growth-focused strategy.
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Emerging markets
Pivoting towards EM, Marshall highlighted JPM Emerging Markets and Invesco Global Emerging Markets as a compelling pair.
The former is led by Austin Forey, Leon Eidelman and John Citron, using a bottom-up, high-conviction approach targeting companies with strong growth potential.
Currently, this leads to the team favouring information technology stocks, representing nearly 30% of the total portfolio with large positions in companies such as TSMC and Samsung.
“The managers benefit from a well-resourced team of over 100 individuals across nine countries, giving them eyes in most corners of the market,” HL analysts said. “We think this is invaluable given the vast range of countries, cultures, and companies within their investable universe.”
Over the past decade, the strategy is up 219.8%, outperforming the MSCI Emerging Markets’ 192.1% return. However, over shorter time frames such as five years, the fund has underperformed, which the HL team attributed to poor stock selection in China.
Meanwhile, the Invesco Global Emerging Markets team has a more contrarian approach, looking for out-of-favour companies.
Analysts at HL said: “The team believes that biases of other investors mean companies are often available at a share price lower than their true value.”
While this can lead to highly volatile performance, the fund has generally delivered over the long-term, with top-quartile returns over the past three, five and 10 years, according to FE fundinfo.
Japan
Finally, Man Japan Core Alpha and Baillie Gifford Japanese were picked by the HL team as a diversified pairing for Japanese equity exposure.
Baillie Gifford Japanese, managed by Matthew Brett, is an out-and-out growth strategy, targeting businesses that can deliver growth over the long-term.
Since Brett took over the fund in 2008, it has risen 342.3%, beating the TSE Topix by around 60 percentage points.
However, as a growth-focused strategy, its performance has not been a straight line upwards, with the fund struggling between 2021 and 2023, according to the HL team.
“This was partly due to the manager’s growth investment style being out of favour.”
To balance this, the HL team suggested a more value-focused strategy, such as the Man Japan Core Alpha fund.
“The fund managers are contrarians and prefer to go against the herd by investing in larger, more-established Japanese companies that are currently unfashionable and out of favour.
“The team focuses on companies it believes are dominant in the industry, in a good financial position and run by quality management.”
However, the team remains disciplined, and when they feel the company has recovered enough, they’ll sell and move on to the next opportunity, leading to the team investing in relatively few companies, HL analysts said.
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