o The Merrill Lynch Global Equity Fund currently has more than half of its $302.3m in assets invested in US stocks. But because the fund takes a bottom-up approach to stock selection, says Graham Bamping, retail investment director at Merrill Lynch Investment Management, geographical distribution is not the driving force behind decision making.
“We feel that the major area of inefficiency in global stock markets is at the stock level,” says Bamping. “It is at that level that we have the greatest potential to add value.” The portfolio is constructed on a stock-by-stock basis, working within the risk constraints that the fund imposes. Under normal circumstances, there is a two to four per cent tracking error/active risk relative to the MSCI World Index excluding emerging markets, he says.
The fund, launched back in 1962, is now run by Ian Rowley with Sue Chan, says Bamping, but he adds: “It’s very much a team-driven process.” Decisions are made by the team of ten. So far this year, the fund has suffered a fall of 13.7%, smaller than the 16.4% drop in the MSCI World Index over the same period.

o The $45m Mellon GF Global Equity Portfolio is run by Paul Butler at Mellon subsidiary Newton Investment Management. Picking undervalued stocks only works if those stocks are likely to gain recognition by the market in the future. This fund takes account of this fact with its thematic approach. “We identify trends and themes which we think will lead markets and behaviour in the future,” says Butler. The analysts at Newton look for new trends that are not well known and therefore not priced into the marketplace.
The fund compares companies by sector, picking them on the basis of their valuation, quality and balance sheet strength. Over the last three years, the negative return of 7.66% has outperformed the FTSE Act World Index, which returned a negative 10.20%.
The thematic method has proved itself over the fund’s 12-year history, says Butler. “That investment process has been consistent throughout that period and we do believe it will continue to work in the future,” he says.

o As military tensions with Iraq continue, the oil price remains high, and it is major oil stock Exxon Mobil heading the top holdings of the Putnam Global Value Equity Fund with a 4.1% allocation. Overall, the fund is overweighting basic materials by 3.1% currently relative to the benchmark while conglomerates are underweighted by 2.4%.
The fund says its strategy uses a disciplined and systematic approach to identifying and investing in attractively valued securities – shares whose intrinsic value is not currently reflected in the share price. At the same time as achieving superior long-term performance, the fund, which began in 1995, seeks to keep volatility low.
Over the last five years, the fund has managed to bring investors an annualised return of 7.6% compared to a 3.2% for the MSCI World Index.

o Bernstein has been dedicated to value style investing since it was set up in 1967. Two years ago, the firm was combined with Alliance Capital, though it remains a separate investment organisation within the group. “Value investing,” a Bernstein spokeswoman explains, “exploits the tendency of people to respond emotionally by extrapolating current conditions – good or bad – too far into the future, particularly by disposing of stock positions that create anxiety.”
But you have to be brave to pick up stocks that are making others anxious. Bernstein says the culture of its organisation allows ACM Bernstein Value Investments Global Value Portfolio to do just that, and this sets it apart from its peers.
As well as this, Bernstein has put a lot of thought into achieving the best risk/reward trade off. By taking slightly more risk as the opportunity for reward increases, and decreasing risk as that opportunity recedes, the fund only takes on risk that will provide a commensurate level of reward.
The fund has been offered to retail investors since the spring of 2001 under the ACM Funds umbrella. The institutional composite of Bernstein Global Value equities has achieved an annualised return of 5.1% over five years compared to 0.5% for the MSCI World.

o An emphasis on Japan and emerging markets has helped Orbis Global Equity Fund in recent months, its managers say, but that wasn’t enough to escape the pervasive decline in equity prices. Still, so far this year, the fund has only fallen 16.4% against a 25% fall in the FTSE World Index.
Geoffrey Gardner, director of fund management at Orbis Investment Management, says the portfolios Orbis runs are quite contrarian in nature. “This results from our value-oriented approach,” he says, “since we find ourselves much more likely to identify great investments in areas that are unpopular or overlooked and we find it difficult and unusual to identify great investments in areas that others are highly optimistic about.”
The fund, which was launched in 1990 and now has $1.167bn under management, focuses on long-term returns and does not try to avoid short periods of relative underperformance at the cost of potential long-term relative gains. Gardner says the team’s main strength is its ability and willingness to make a limited number of what they consider to be great long-term investments without being influenced by popular investment sentiment.

o With a stated aim of outperforming the benchmark by 2.5% a year gross in five-year rolling periods, the Morgan Stanley SICAV Global Equity Value Fund has achieved almost exactly what it set out to do. In the past five years its Class I shares have returned an annualised 2.81% against a fall in the MSCI World of 0.72%.
The fund is run by Frances Campion, who has more than 17 years of global equities investment experience. It aims to generate returns for investors by taking advantage of the tendency the financial markets have to focus on short-term factors, with stock prices often failing to reflect the real value of companies.
But it’s important to get one’s facts straight first. The group says an important goal of the fund’s analysis is to make accurate comparisons between companies domiciled in different countries. “Variations among global accounting practices can lead to misinterpretation of many standard valuation measures. Our process is designed to minimise this uncertainty,” it says.

o The Templeton Global Growth Fund has adhered to the investment ideas of Sir John Templeton who founded the firm 50 years ago, says spokesman Bill Babtie. “The philosophy has been one of value, but flexible value,” he says.
The fund takes a very long-term perspective, working on a five-year view. This means turnover is very low, says Babtie. In the last 10 years, turnover has been just 20%. The fund’s management team works with a bargain list of between 100 and 125 stocks that offer good long-term value, trading on price/earnings ratios in the high single figures.
“We believe very strongly in diversification, both in terms of industry and geographically,” says Babtie, but he adds that the fund is prepared to underweight the US and overweight Europe, for example, when necessary.

o ACM Global Investments Global Growth Trends Portfolio focuses on six global sectors selected for their growth potential, At the moment, the sectors in focus are communications/information technology, health care, financial services, infrastructure, energy, and consumer growth.
The fund, which was launched eleven years ago, currently holds $1.8bn of investors’ money. The annualised return stands at 11.89% – outperforming its benchmark which rose by 5.9% over the same period.
Robert Alster, one of fund’s manager/sector analysts, says the fund has three special aspects differentiating it from others in its class. First, it is exclusively growth orientated both from a top-down sector approach and a bottom-up research methodology. Second, it is managed exclusively by sector and industry and not by geography. “The last special aspect,” he says, “is that it is managed by six senior sector analysts and this achieves diversification across both industries and managers.”

o The Janus World Funds Global Value Fund searches the world for between 30 and 50 companies that offer the most attractive risk/reward situations, regardless of which country of industrial sector those companies reside in, according to Jason Yee, the fund’s manager.
“By using a concentrated portfolio approach, we focus investments only in those few companies that meet all our strict fundamental and valuation criteria,” he says. He says the investment team wastes very little time on forecasting macro trends, instead preferring to spend their time finding businesses that can thrive in any economic environment.
The fund, which was only launched in June 2001, has assets under management of $176m. Performance so far has naturally been poor given market conditions, but the fund has managed to limit falls to 10.48% since inception – just a third of the drop in the MSCI World Index over the same period of 30.80%.
“Over time, we believe this investment process can deliver superior long-term returns, and minimise the risk of permanent capital loss, as the market ultimately reflects the underlying business value of each holding,” says Yee.