We embark on the second quarter with the launch of a revised feature: the Morningstar Fund Radar. In this weekly column, succeeding the previous Top 5 analysis, Morningstar’s fund analysts examine the state of affairs within a particular asset class, then delve into one or several mutual funds, with the primary selection criterion being the Morningstar Medalist Rating. As customary, we commence the new quarter with an overview of global equity funds.
Investor enthusiasm culminated in a robust final surge in the last quarter of the 2023 stock market year, during which the MSCI World index ascended to an annualised return of nearly 20%. Optimism regarding the anticipated interest rate reductions by US and European central banks was a significant catalyst, although this optimism waned somewhat at the outset of 2024. Anticipations of imminent interest rate cuts dissipated following revelations that the ultimate challenges to driving inflation towards the established targets were more formidable than investors had predicted, and policymakers tempered expectations for swift and decisive interest rate actions. Persistent inflation, geopolitical unrest, multiple forthcoming elections before 2024, and apprehensions about the Chinese and US property markets intermittently weighed on investor sentiment.
Nonetheless, leading stock indices achieved record highs in the first quarter of 2024. Investor-friendly reforms, unprecedented wage growth, robust corporate earnings, the conclusion of the deflationary period, a weakened currency, and the relaxation of the negative interest rate policy rendered Japan a haven for soaring stock prices. The Nikkei index shattered its iconic 1989 peak after 34 years, subsequently surpassing the 40,000-point threshold. With a 20% increase, measured in euros, the Japanese stock market ranks among the top performers in the initial quarter of 2024.
US market leads
Although stock market indices in Europe continued to set records, globally, the spotlight was on the performance of the US market leaders, dubbed the Magnificent 7. While not all seven frontrunners of 2023 maintained their standing, the disparity in returns within the group was notable after the first quarter of 2024. Alphabet experienced a tumultuous quarter yet managed to recover in March, whereas Apple (-5 percent in euros) and Tesla (-12.7 percent) particularly struggled to match the pace of the leading figures in this renowned group. Taste maker Meta pleased investors with favourable results and a dividend surprise, while Nvidia remained the undisputed jewel of the stock market, fueled by unceasing demand for memory chips essential for advancing the AI revolution. Measured in euros, the stock has already achieved an impressive plus of 86.7 percent for the current year to the end of March, reflecting the prevailing euphoria in certain market segments, particularly within parts of the semiconductor value chain.
In other market sectors, commodities also exhibited notable return performances. For example, oil prices are ascending once again, the price of an ounce of gold has reached a new high, and cocoa prices are skyrocketing. This contributes to ensuring that inflation trends remain a central theme influencing investor sentiment.
Morningstar Equity Global large-cap mixed category
The strategies that prominently feature on Morningstar’s radar either boast a competent management team and investment process, in the qualitative opinion of the fund analysts, or receive these accolades based on an algorithm that assesses investment funds using the same framework as the analysts. We spotlight one strategy within the Morningstar Equity Global large-cap mixed category that merits attention partly due to its performance over the past quarter.
Allianz Best Styles Global Equity Fund
The Bronze-rated Allianz Best Styles Global Equity has had an excellent start to 2024, achieving over 13 percent returns, outperforming the MSCI World Index by approximately two percentage points. The strategy is overseen by a proficient team of quantitative specialists who employ a disciplined multi-factor quantitative approach. It is awarded People and Process Pillar ratings of Average and Above Average, respectively.
This strategy is managed by the AllianzGI Systematic Investment Team, comprising 18 quantitative specialists with two decades of experience in multi-factor investing. Lead manager Kai Hirschen assumed responsibility in April 2022 but has been overseeing the strategy’s institutional mandate for over a decade. In August 2021, the team was restructured, establishing separate sub-teams for portfolio management, research, and sustainability. Besides model maintenance, optimisation, and execution, the group concentrates on factor research, quantitative investing, machine learning, and artificial intelligence. While the expansion of the team’s resources through asset growth and the introduction of new strategies is praiseworthy, the team has experienced attrition in recent years.
Five style factors
The strategy employs a straightforward, well-defined, quantitative, multi-factor investment approach consistently applied across all market cycles. It integrates five style factors: value, momentum, revisions, growth, and quality for consistent performance. Value is the most emphasised style, followed by momentum and revisions. A stock selection mechanism and portfolio optimisation tool yield a diversified portfolio of 350-450 stocks, with regional and sectoral exposure closely mirroring the index’s weight. Overall, the process is well-conceived, predictable, uncomplicated, and has yielded favourable results. Over the last three calendar years and in the current year, the strategy has consistently outperformed the broader market index, primarily due to the strong stock selection within the portfolio.
Jeffrey Schumacher is director manager research at Morningstar Benelux. Morningstar analyses and evaluates investment funds based on quantitative and qualitative research. Morningstar is one of Investment Officer’s knowledge partners and takes an analytical look at a specific category of investment funds every Friday.
As Investment Officer Knowledge Partner, Morningstar each Friday sheds its lights on a specific category of investment funds. The series replaces the ‘Top 5’ funds overview, which generally addressed funds only available to investors in the Netherlands and/or Belgium. Funds discussed in the Morningstar Fund Radar are also available to investors in Luxembourg.