Jeffrey Schumacher

This edition of the Morningstar Fund Radar delves into the investment strategies that have caught the attention of European investors and highlights some surprising trends from the first half of the year. India has emerged as a standout among emerging markets.

This week’s Morningstar Fund Radar shines a spotlight on global equity funds, revealing a stellar performance led by US tech giants and highlighting the political twists shaping investor sentiment worldwide.

The surge in global equities is primarily driven by large-cap stocks. Smaller companies have not fared as well, and this disparity has persisted since 2021, Morningstar Fund Radar’s analysis shows.

There remain dedicated value investors who, with relentless perseverance, scour the US stock market in search of overlooked gems that can shine once again.

Dividend funds have long been a stalwart for investors seeking reliable income. Traditionally, these funds focus on stocks that offer high and dependable dividends, often from companies with strong cash flow, solid market positions, and healthy balance sheets. 

Increased concentration in equity markets has emerged as a significant concern for investors. The rising dominance of US companies globally, notably the pronounced influence of the technology sector in major stock indices, is typified by the hegemony of a small cadre of prominent stocks, colloquially known as the “Magnificent Seven.” This phenomenon continues to captivate market participants, though signs of vulnerability in the supremacy of these seven market stalwarts are beginning to surface.

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.

Active funds collectively underperform compared to their passive counterparts, primarily due to their struggle to remain competitive over time. However, exceptions exist, such as global dividend funds, which consistently outperform in this challenging environment.

A turbulent first half of the year has had a clear impact on fund flows, with renewed investor interest in bond funds, increased focus on emerging markets, and continued growth of passive strategies defining the landscape for the first six months of 2023. BlackRock’s iShares and Vanguard led the pack in terms of inflows during the first half. 

AI funds are offering investors the opportunity to capitalize on the burgeoning interest and opportunities that Artificial Intelligence presents. Using the Consensus Purity Score, Morningstar was able to rank funds based on their pure exposure to the AI theme. A top 5.