The domination of the Global Titans Index is nearing a turning point which should mean a revival for active managers, according to Downing Fund Managers.
Downing is a responsible investment manager established in London in 1986. The firm manages £2 billion of assets under a range of investment mandates across funds, investment trusts and other products.
The Global Titans Index, which tracks the 50 largest stocks in the world, has returned 36.9% over the 12 months to February compared to 18.4% from the Global Equity Index. Analysis by Alex Paget of Downing Fund Managers says this is the biggest margin of outperformance between the two indices in a single year on record, and the top 50 companies have now been outperforming the rest of the market for 14 years.
However, Paget believes the Global Titans domination may be seen by future generations as “collective hysteria” and stresses that markets are currently the most concentrated they have been since 2004 in the case of Europe, Japan and Global, and in the case of the US, since 1989.
Top 50 stocks at most expensive point in 20 years
Paget, a manager of the Downing Fox multi-manager strategies says P/E ratios of the top 50 global stocks are the most expensive they have been relative to global equities for 20 years while the domination of the Titans means active managers are struggling to outperform them.
Of the 1,700-plus active managers globally, just 43 – 2.5% – have outperformed the Global Titans Index in the past 12 months, putting pressure on funds of funds.
Paget says historical comparisons such as the end of the tech bubble in March 2000 ended a previous period of mega-cap domination. while the 1970s also saw a group of stocks known as the Nifty Fifty which dominated but then fell further than other stocks when a bearish market set in.
As Paget explains: “As the old saying goes, history doesn’t repeat itself, but it often rhymes. We have seen periods in the past where it seemed futile to invest in anything other than the world’s biggest companies, but this domination of mega-caps has never continued indefinitely.”
When the market dynamics have shifted in the past, it has led to large falls in capital value. Given this mega-cap trend has been going for close to 14 years now, Paget suspects we are getting closer to that turning point: “When it occurs and the market isn’t the narrow beast it is today, we believe, like the period between 2000 and 2007, it will be a much more fruitful hunting ground for active managers,” he says.
The VT Downing Fox Funds range consists of four funds of funds. Each portfolio differs depending on how much equity, or ‘growth’ exposure they have, enabling advisers to recommend the option they feel is suitable for their client.
Downing says the Fox Funds are simple, reliable and user-friendly and are designed to deliver good returns for clients over the long term, without the emotional highs and lows along the way.
