Robert van den Oever: Welcome to Morningstar. Today I talk to a senior manager research analyst Ronald van Genderen, and we will look at three global equity funds for 2025 and beyond.
But before we do that, we are looking back a bit to 2024. And Ronald, what kind of a year was 2024 for stocks?
Ronald van Genderen: Yeah, so Robert 2024 was a banner year for global equities with the Morningstar Global TME Index up 25% in euro terms. However, returns were quite uneven across regions, I must say. For example, European equities as measured by the Morningstar Developed Europe TME Index lagged well behind the global equity index with a gain of only 9%.
The Morningstar Emerging Markets Index fared slightly better at more more than 14%, but it was still trailing the global index, even more than in 2023.
It was the US stock market that led the way. The Morningstar US Index gained no less than 33%.
Van den Oever: And if we look even further back to 2023, returns came primarily from the so-called Magnificent Seven tech stocks, all American technology related stocks. And they accounted for 44% of the global equity Index’s return of this year. And did they lead the markets again last year or not?
Van Genderen: Yeah, I would say that the picture was more nuanced in 2024. The select group of seven stocks continued to dominate, but to a lesser degree than in the previous year. They still accounted for nearly one third of the Morningstar Global TME Index return. Within that group, Nvidia was clearly the leader, as it was the top performer with a return of almost 190%.
However, the increase was more broadly spread, which also shines through the sector level. For example, stocks in the financial services and utilities sector also saw strong returns in addition to relatively strong performances in again the communication services, consumer cyclicals and technology, which dominated dominated markets in 2023.
Van den Oever: Now if we then look into detail a bit more, how did, global equity fund managers perform over the past year 2024?
Van Genderen: Yeah, it was a really difficult year for global equity funds, to say the least. For example, the average return of a fund in the Morningstar category global large cap blend equity equity was 19.7%. Not bad in absolute terms. But also, that means that they underperformed by more than five percentage points, relative to the benchmark. And to put that into perspective, this was the largest underperformance for global equity funds over the past 10 years. And by comparison, the gap in 2023 was only 2.6 percentage points.
And unfortunately, some funds in which Morningstar analysts have a high conviction didn’t have all escape from these difficulties last year. And also like the broader market in 2024.
Van den Oever: Now, if we go a little bit deeper into the examples of the funds, can you give some names of funds that have underperformed, but the analyst’s conviction of the fund remains high? So funds that you think are a good pick for 2025 and beyond?
Van Genderen: Yes, absolutely. I have three funds I would like to highlight. The first is MFS Meridian Global Equity. And this fund is led by Roger Morley and Ryan McAllister. The duo works closely together making very effective use of the firm’s wider team of analysts. The long term approach is straightforward, disciplined, and ignores index weightings while constructing the portfolio. And this is evidenced by a structural bias towards industrials and healthcare companies at the expense of materials and technology allocations. And the consistent emphasis on valuation in the search for quality companies has been a stumbling block on a number of occasions, in recent years. But in the past, this has also made the fund a winning proposition.
Next up in line, is Robeco QI Global Conservative Equities. And this fund is managed by a team of six, led by Pim van Vliet, whose academic work has provided the conceptual, basis for the fund’s investment philosophy. And this stable and experienced management team is well supported by more than a dozen quantitative analysts who are critical to the success of the fund as they drive the ongoing refinement of the systematic process. And that is based on winning by not losing, using a rule based process based on empirical research showing that investing in low risk stocks lead to superior risk adjusted returns. However, the strategy goes beyond traditional low volatility investing as it also combines value, quality, sentiment and momentum signals to enhance the overall risk return profile.
And then finally, I would like to mention Wellington Global Stewards. And this fund management trio is supported by Wellington’s deep and experienced team of more than 50 global sector analysts, as well as the firm’s sustainable investment research team. The managers, use quantitative screens to narro down the global investment universe before, diving into the most promising names on a fundamental basis. They look for global large cap companies that combine positive ESG characteristics with high and consistent returns on capital, and they aim to keep the portfolio reasonably diversified across sectors and regions, while maintaining a concentrated portfolio of 35 to 45 stocks.
Van den Oever: Okay, Ronald, thank you very much for your insight in these three promising firms that your team has a high conviction on. For Morningstar, I’m Robert van den Oever. Thank you for watching.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
