The Briefing: Global sector

Given the uncertainty in financial markets, there's little wonder that the Investment Management Association's Global sector remains one of the most popular among UK investors.

When there is so much volatility in the world it makes sense to be diversified - and that's exactly what's on offer with this sector.

Boasting an impressive £75.1 billion of funds under management (only the UK All Companies sector has attracted more money), the Global sector is seen as one of the simplest and convenient ways in which to access a portfolio of overseas markets.

This can make Global funds suitable for a wide variety of individuals, according to Patrick Connolly, a certified financial planner at Chase de Vere, particularly those wanting diversified exposure to shares but who haven’t got enough money to achieve this through individual regional funds.

The aim of the Threadneedle Global Select fund is to achieve above-average capital growth by investing globally in a diversified portfolio of equities. Read more.

"These can be long-term 'buy and hold' funds, which make them suitable for long-term investments such as pensions, savings for children or for investors who don't want to be actively involved in monitoring their investments on a regular basis," he explains.

Is this the right sector for me?

Consider investing in this sector if...

• you want a good level of diversification in global stockmarkets
• you want a fund manager to make decisions on geographical splits
• you are investing for the longer term

This sector, which was previously known as IMA Global Growth, has been gradually growing in popularity over the past few years since it was redefined as part of an overhaul. Funds in this sector must invest at least 80% of their assets globally in equities and be diversified by geographic region.

The major benefit of this sector is that investors can achieve a good level of diversification in global stockmarkets with a relatively small investment.

Also, assuming that investors make a sensible initial choice and understand the fund they are investing in, they don't need to worry about ongoing geographical splits or asset-allocation calls because their fund manager will make those decisions.

The sector itself has performed well in recent years. Over the past five years, for example, it has achieved a cumulative return of 57.28%. While this is some way behind the likes of IMA North American Smaller Companies, which has performed staggeringly well, it's comfortably better than IMA Asia Pacific excluding Japan and IMA Europe excluding UK.

Whereas investors were once traditionally drawn to certain areas of the world, there is a growing recognition that excellent companies can be found across the globe. Finding a manager that has the ability to recognise such opportunities, therefore, is certainly worth looking at.

Geoff Penrice, a charted financial planner at Astute Financial Management, believes a global fund is worth considering as part of a diversified, broader portfolio. "These days, we are living in an increasingly global world so it makes sense to tap into the potential that a global fund can offer."

There are around 250 funds to choose from, which not only means that potential investors are spoilt for choice but also raises other considerations, such as differences in the ways in which they are run, according to Mark Dampier, head of research at Hargreaves Lansdown.

We are living in an increasingly global world so it makes sense to tap into the potential that a global fund can offer"Geoff Penrice

Some managers, he points out, will have more flexibility in terms of stocks they can hold or exposure to sectors, countries and regions. "Some could have more exposure to higher-risk emerging markets or smaller companies," he explains.

"Funds should therefore be judged on their individual merits to ensure they are right for your personal circumstances."

The sector includes funds looking to generate income alongside those looking for growth, funds that will take big asset-allocation bets and others that don't, and those that have some exposure in the UK and those that don't. In addition, there will be a range of specialist or ethical funds.

This also helps to explain the differences in performance achieved over the past fi ve years, which on the face of it can seem extraordinary. While the best-performing names have delivered a return of more than 120%, others have lost more than 30%, according to Morningstar data compiled for the five years to 2 December 2014.

On closer inspection, you can see the best names had higher allocations to healthcare, which has performed well over the period, while those at the other end of the performance tables were more heavily into areas such as resources and energy, which have struggled.

In conclusion, funds in IMA Global are certainly worth considering if you're looking for broad international exposure. However, you must not only look at the aims and objectives of different funds but also the longerterm performance track record of the manager at the helm.

It's a point echoed by Connolly at Chase de Vere. "The diversity of the sector can cause confusion and makes it really important to fully understand how individual funds work and not to necessarily compare funds with others in the same sector or with the sector as a whole," he says.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.