Funds wait for fundamentals to catch up with market rises says S&P report

A move to developed markets has been a consequence of the market upheaval, said S&P in annual review of global equity funds. Many managers have fled to quality, including developed countries, defensive sectors and larger companies in order to protect themselves. When risk appetite returns to the market, this may change S&P Fund Services lead analyst Lesley-Ann Hodges said.

Among fund managers who decided to wait out the financial crisis and as a result have seen a significant recovery since March, despite being badly hurt in the original fall include Fortis OBAM and Pioneer Global Trend Funds.

Funds caught out by the rally included the Aberdeen global equity funds and the Franklin Mutual Global Discovery Fund. The Aberdeen funds have a quality bias and are low in energy and materials sectors. This benefited them during the rally according to Hodges.

The Franklin Mutual Fund increased the defensive nature of its fund through puts and holding up to 50% in cash.

Despite the perception that small-cap stocks took the brunt of the fall relative to larger companies, the numbers show returns have been identical at a negative 34%, said Hodges. Reginald growth or value style had less impact on performance than sector positioning during the rally.

The review covers the 12 months to the end of May 2009, including the first months of the rally in March. Hodges said global equity fund managers who took shelter in defensive areas during that rally were wrong footed by the speed of it.