Our favourite global equity funds

These top picks make it easy to diversify across geographies.

Christopher Davis 3 December, 2015 | 6:00PM
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Note: This article is part of Morningstar's 2015 Global Equities Week special report.

Despite its vast land mass, Canada is a small fry in the global markets. Accounting for roughly 3% of the world's total market capitalization, its stock market makes up a tiny slice of the global market. Investing outside the country makes good investing sense: The remaining 97% of the globe provides much needed diversification away from Canada's commodity-oriented market and from the Canadian dollar. (Analyst Jeff Bunce lays out the case for global investing in much greater depth here.)

Some investors build global portfolios by stitching together U.S., developed international and emerging market funds, while others opt for single funds investing in them all. There are good reasons to take the former approach. For one, it's easier for investors to control their asset allocations. Many global funds limit regional or country bets, but the weightings still can shift significantly, making them a tougher fit within a portfolio. Second, expecting a single fund to invest successfully across many different markets is a tall order. Choosing regional specialists means you don't have to.

There's still a good case for going global in a single fund. One virtue is simplicity. More complicated portfolios mean more monitoring and maintenance. Moreover, there's something artificial about dividing the world into geographic blocks given many companies' global footprint. Global equity managers can compare like companies across regions and choose the best ones according to their criteria.

Investors seeking global equity exposure will find our favourites below:

iShares Core MSCI All-Country World Ex-Canada (XAW): A no-fuss way to invest globally is to simply hold the global market portfolio excluding Canada. This ETF provides the broadest exposure to global markets outside of Canada in one fell swoop. Large U.S. and European multinational firms dominate the portfolio, though with the largest weighting at less than 2%, no single company drives returns. One potential knock against the indexing route for Canadians: The fund's relatively heavy financials weighting -- its stake is 21% versus 16% for the average fund in the Global Equity category -- means it may be a less-effective diversifier to already financials-heavy domestic exposure. However, it could be a useful complement to the active funds discussed here, whose un-benchmark-like portfolios can lead to uneven performance.

The big advantage the fund gets from its low 0.21% management-expense ratio means it will likely prevail over most of its actively managed rivals over the long haul. Rival Vanguard FTSE All Cap ex-Canada Index ETF (VXC) matches it on cost, though its slightly lighter small-cap weighting means its global coverage is a bit less extensive. About 6% of this ETF is invested in emerging markets. Investors seeking to avoid them can consider sibling iShares Core MSCI World (XWD) as an alternative.

Mawer Global Equity: Managers Paul Moroz and Jim Hall, like their Mawer counterparts, target highly profitable firms with strong competitive advantages and reasonable valuations. Many rivals share similar approaches, but the team's disciplined execution and focus on the long term has resulted in a track record that is among the top in the category. The managers prioritize quality over price and have continued to emphasize the former as valuations have climbed in recent years. Their defensively positioned portfolio will likely help it weather a down market better than the peer group, though its relatively expensive portfolio could make it harder for the fund to replicate its eye-catching success of recent years. Investors using an advisor can consider Manulife World Investment, which is run in an identical fashion. Mawer Global Small Cap, also managed by Moroz, remains a top-rate way to invest in smaller names globally. The fund is close to institutional investors but retail investors can still buy in. Manulife Global Small Cap offers access to the same strategy for the advisor channel.

EdgePoint Global Portfolio: Like their Mawer competitors, Geoff Macdonald and Tye Bousada favour higher-quality names. Their approach is more price-sensitive, though, and they will hold stocks of lesser quality if the valuations are more appealing. That's been the case more recently, as relatively cheap cyclical fare has offered better value than higher-quality stocks in steady industries. The managers favour a concentrated approach -- the portfolio currently holds about 40 stocks -- and employ a go-anywhere approach, giving the fund much more mid- and small-cap exposure than average. Performance has been stellar since the fund's late 2008 launch, though it has yet to be tested in an extended downturn. Macdonald and Bousada both enjoy long, successful track records over full market cycles, however, at Trimark, which they left to found EdgePoint. Low fees and a fundholder-friendly culture (EdgePoint recently picked up Morningstar's Steward of the Year award) seal this fund's appeal. Investors seeking global exposure with less volatility can consider EdgePoint Global Growth & Income Portfolio, which holds the same stocks along with corporate bonds and cash.

CI Black Creek Global Leaders: Manager Bill Kanko is a 30-year industry veteran who like his EdgePoint rivals is a Trimark alumnus. Thinking like a long-term business owner, Kanko looks for market leaders gaining share. He'll only invest when he believes he has developed a unique thesis not yet reflected in stock prices. In a relatively efficient market, there won't be many stocks meeting this description, explaining the fund's compact portfolio of 25 to 35 stocks. You won't see most of Kanko's top picks, such as German brick maker Wienerberger, headlining most global equity funds. The concentrated, offbeat portfolio courts volatility; it dropped 15% in 2011, versus a 3% loss for the MSCI World benchmark. It rebounded smartly in ensuing years, however, and Kanko's record here and at Trimark handsomely beats his benchmark and peers.

Chou Associates: A true original, manager Francis Chou is a deep-value manager of the Graham and Dodd variety. Chou will overlook ugly headlines or a spate of bad operating results as long as the stock price is low enough to give him a big margin of safety. His portfolio is still concentrated in a handful of names -- typically fewer than 20 -- and Chou invests without regard to any benchmark's sector or country weightings. He'll also hold cash in the absence of bargains. Not surprisingly, the fund's performance rarely moves in lock-step with the category rivals, which requires fund holders as willing as Chou to stick out the inevitable dry patches. Those that have done so have been rewarded, as Chou's three-decade track record is among the country's best. One caveat: As a one-man show, this fund's key-person risk is sky-high.

CI Cambridge Global Equity: Managers Alan Radlo and Brandon Snow say they left Fidelity (in 2007 and 2011, respectively) so they could invest without the benchmark-centric constraints imposed by their former employer. Here, they've been able to harness their experience while leaving their benchmark-conscious ways behind them. They aren't afraid to look different than their MSCI World bogy; 75% of their stock portfolio is invested in U.S. stocks, versus around 50% for the benchmark. They are overweight in steadier sectors like health care and very light on financials, for example. They also hold around 20% in cash. These attributes aren't likely to be permanent fixtures, however. Following the financial crisis, the managers slashed the fund's U.S. exposure. Moreover, turnover north of 200% means nothing here is set in stone. The managers have handsomely beaten the category average since coming aboard, though returns match the benchmark's and aren't as strong on a risk-adjusted basis. Their portfolio lands deep into the growth column of the Morningstar Style Box, which could make it a good match with a value-leaning option.

Fund name YTD 1 Yr 3 Yr 5 Yr
iShares Core MSCI All Country Wld ex Can - - - -
Mawer Global Equity A 15.23 20.62 22.31 16.80
EdgePoint Global Portfolio Series A 12.89 18.86 26.64 17.62
CI Black Creek Global Leaders Class A 15.08 18.61 22.28 12.00
Chou Associates -5.81 -3.75 14.16 10.95
CI Cambridge Global Equity Corporate Class 4.92 7.77 16.78 10.60
Fidelity True North Sr B -2.04 1.74 11.69 8.05
Source: Morningstar. Data as of October 31, 2015

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Christopher Davis

Christopher Davis  Christopher Davis is Director of Manager Research at Morningstar Canada.

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