‘They grow up so fast’

Tom Walker, Portfolio Manager, Martin Currie Global Portfolio Trust

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For many investors the most crucial decision they will have to make is how to save for their child’s future. It could be funding further education fees, round-the-world travel, or the deposit on their first flat – in all cases life-changing events. To do this though requires a long-term mindset, and a portfolio which is able to withstand any potentially negative macroeconomic factors. In my 16 years as manager of Martin Currie Global Portfolio Trust, I have seen many changes in equity markets, but it is my firm belief that investing in global equities offers many advantages for investors with such a long-term investment horizon.

Going global – widest range of opportunities

I believe a strong core of any investment portfolio should be global equities, especially over the long term. Over time, while equities are more volatile and risky than some other investments, they outperform the returns paid by banks and building societies.  At the moment bonds are also offering rock-bottom yields, in some cases negative.  Of course, interest paid in a bank account is not at risk, while in an equity portfolio your capital is at risk and bonds have a different return profile than equities.  A long-term investment horizon helps, as time in the market is important.  Although there are no guarantees in the future, equities have proven to deliver average returns above many other types of investment.

Go global – access to the world’s best companies

By taking a global approach, a fund manager can access the world’s best companies without geographic constraint, providing a one-stop-shop portfolio, diversified across the widest range of companies, sectors and economies.

There are two main reasons why this is an advantage. Firstly it helps spread the risk for investors. A current example is the impact of the shock UK vote to leave the European Union. While markets have recovered from the initial slump that followed the referendum, Brexit is still likely to have a significant impact on the growth outlook for UK and European markets. A global portfolio manager has more freedom to take steps to insulate the fund from the worst of these effects.

Secondly, a global approach allows the greatest range of opportunity. As an example, the current environment of low growth and low interest rates looks set to continue for some time to come, but there are companies around the world that thrive in these conditions. These will be spread across international markets and, with a wide remit, can be included in the portfolio.

This approach is reflected in the lifespan of the Martin Currie Global Portfolio Trust, which has just passed the five-year anniversary of changing to a global, rather than UK, focus. While it is common to favour investing in your home country, very few countries can match the range and breadth of a global remit. For example, the UK is a strong economy but is heavily overweight with oil and gas companies – and lacks technology firms.

Martin Currie Global Portfolio Trust portfolio does include ARM holdings, a semiconductor and software design company – and a UK success story. However, Japanese multinational Softbank has agreed to acquire the company which would further weaken the UK’s technology credentials for investors. Meanwhile, the portfolio has been invested in Apple for a number of years.  It’s one of the world’s highest-rated companies but this would not have been possible if the mandate had remained UK only.

Active management is the key

Changing mandate has proven to be the right decision; global equities have outperformed UK equities in the last five years, as the chart shows. However, Martin Currie is an actively managed portfolio that aims to outperform its benchmark (the FTSE World) not mimic it – and in fact it has demonstrated outperformance of both the FTSE World and FTSE All-Share during that time.  Of course, this is historical performance and there is no guarantee that it will be replicated in the future.

Fundamentally, I believe a bottom-up approach, avoiding making decisions based on wider macroeconomic factors, such as trying to forecast the oil price or yen value, works best. Active managers apply fundamental research to construct a diversified portfolio. Martin Currie Global Portfolio Trust currently has around 50 high-conviction ideas, with the aim of providing shareholders with above benchmark returns. The selection is based on meeting company management teams and understanding where their competitive edge may lie.  Over the long term, this insight has delivered returns greater than the benchmark, and I believe will continue – of course, there are no guarantees.

The power of re-investing dividends

Many investment trusts also offers the benefit of regular dividends.  For investors thinking about the long term, re-investing these dividends can have a powerful effect on boosting your total return and the longer the investment periods, the greater the effect will be.  Similarly, many savings plans offer the freedom to top-up investments regularly and adding small amounts can have a dramatically positive impact over time.

Focusing on long-term fundamentals

For long-term investors, I believe the low-growth environment plays to the strengths of high-quality companies which are attuned to more secular themes. The challenge, of course, is finding them.

There are clearly individual companies and specific niches within economies that are still expanding and will continue to do so, long after the current market buoyancy subsides. Identifying these companies, those with superior returns and that reinvest in their businesses to maintain and improve their competitive positions, is the best way to invest for the long term.

Important decisions

So if you are thinking about an investment for children, it may be one of the most important investments decisions you make.  However, time is on your side.  Although growth may be hard to come by in the current economic environment, I believe that an actively managed, global equity portfolio can offer strong growth potential over the long term.

So, to sum up: go equities, go global, go active.

This information is issued and approved by Martin Currie Investment Management Limited. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested. Past performance is not a guide to future returns. Please note that, as the shares in investment trusts are traded on a stockmarket, the share price will fluctuate in accordance with supply and demand and may not reflect the value of underlying net asset value of the shares. Depending on market conditions and market sentiment, the spread between purchase and sale price can be wide. As with all stock exchange investments the value of investment trust share purchases will immediately fall by the difference between the buying and selling prices, the bid-offer spread. The value of investments and the income from them may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. The majority of charges will be deducted from the capital of the Company. This will constrain capital growth of the Company in order to maintain the income streams.