Three complements to a global tracker fund

What is a global tracker fund?

Passive investment funds or ‘trackers’ offer a simple way to invest in the stock market by tracking an index such as the FTSE 100 or S&P 500. They do this typically through buying shares in each individual company in that index – or a large proportion of them.

The best passive funds come with low fund charges or, in the case of exchange traded funds (ETFs), a narrow range between buying and selling prices.

Trackers are available for most global markets, but to capture all the world’s major stock markets in one investment, longer term investors can consider a global index tracker fund. These follow very broad indices such as the MSCI World and are made up of companies from across the developed world.

A global tracker fund can offer broad exposure across regions and sectors, but that doesn’t automatically guarantee a truly diversified portfolio. In recent years, global index funds have benefited significantly from growth-oriented and technology-focused companies, and they are now dominated by them.

For those seeking to reduce reliance on the all-conquering “Magnificent Seven” or concerned about lofty valuations in parts of the global market, exploring funds with a different approach may be worthwhile.

Alternatives to global tracker fund options

The global funds sector is highly competitive, offering a wide array of actively managed funds trying to beat the market alongside the low-cost passive options tracking an index.

Passive funds have grown in popularity – and for good reason. A large portion of global market returns over the past decade has come from a small group of exceptional companies, including Apple, Amazon, Alphabet, Microsoft, Nvidia, Meta Platforms, and Tesla. These tech giants, often seen as key beneficiaries of the AI revolution, dominate global indices due to their size and performance.

When the largest companies in an index are also the best performers, tracking the index can be a sensible strategy. In such environments, active managers often struggle to produce higher returns, and deviating from the index is less likely to yield better results.

However, market momentum can shift. High expectations can lead to disappointment if earnings or developments fall short. This year has already seen greater divergence in performance among the tech leaders, with some experiencing sharp sell-offs after missing earnings targets. The high bar set by investors leaves little room for error.

Looking beyond trackers: active alternatives

For those anticipating a broadening of market performance or who are questioning the diversification of a US and tech-biased passive fund, actively managed funds could offer some valuable differentiation. Active funds are a type of investment where a fund manager selects a range of investments they believe can beat a particular index – but there’s no guarantees and many actively managed funds underperform over the long term.

There are many options for high-quality global funds that focus on value investing or income generation while maintaining a commitment to quality – providing a useful counterbalance to passive funds and growth-oriented strategies. Commonly, they have greater exposure to other geographical areas such as Europe and have different top holdings to a standard passive fund.

Here are some ideas from the Charles Stanley Direct Preferred List. The shortlist has been created by our Research Team to highlight good-quality options across major sectors and geographies for new investment.

They should all be considered long term investments meaning five years plus. They are provided for your information but are not a guide to how you should invest. Before investing in any fund please read the relevant Key Investor Information Document or Key Information Document, and Prospectus to ensure they fit with your objectives, risk appetite and wider portfolio. All investments can fall as well as rise in value.

Schroder Global Sustainable Value Equity

This fund takes a contrarian, value-based approach to investing, offering diversification from growth-heavy or passive portfolios. While value investing has lagged in recent years, maintaining exposure to out-of-favour styles can enhance resilience of a portfolio in the long run.

The fund has a ‘Sustainability Focus’ label, investing towards positive environmental and social outcomes. It invests exclusively in companies identified by the managers as making a positive impact or demonstrating significant improvement. Its concentrated portfolio and distinct style mean performance may be volatile relative to benchmarks, but it can bring something different to a portfolio dominated by growth stocks.

Value investing in global equities with a responsible lens is relatively rare these days. Traditional industries – where value stocks often reside – may struggle to show clear sustainability progress. Yet, raising standards in these sectors can arguably have a greater real-world impact than investing only in already high-performing ESG companies.

For investors with responsible investing goals, this could be a valuable diversification tool in a portfolio. However, it’s important to access whether a fund aligns with your personal values as well as your financial objectives and risk appetite.

JOHCM Global Opportunities

This lesser-known fund managed by Ben Leyland and Robert Lancastle takes a distinctive and disciplined approach to global investing. A concentrated portfolio of just 25 to 40 stocks – where each holding can meaningfully influence performance – can mean performance is very different to market returns for year to year, but we believe the manager’s focus on good-quality global companies could provide attractive long-term returns.

A defining feature of the fund is its emphasis on capital preservation. The managers focus on resilient businesses with strong balance sheets and are not afraid to hold cash when opportunities are scarce – an uncommon tactic in the fund world. For example, they raised the fund’s cash allocation to its 10% limit in 2021 and again approached that level briefly in late 2023. This flexibility allows them to remain patient and disciplined rather than chasing returns in overheated markets.

Rather than aligning with traditional growth or value labels, the managers seek out what they call the “forgotten middle” – companies that combine quality, durability, and reasonable valuations. Their process focuses on developed markets and targets businesses with underappreciated earnings and cash flow stability.

This approach often leads to a diverse and unconventional mix of holdings, with sector and geographic exposures that shift over time to reflect where the managers see the best opportunities. The result is a portfolio that adapts to changing market conditions while staying true to its core principles.

M&G Global Dividend Fund

Dividends – company profits paid to shareholders – are a vital yet often overlooked aspect of equity investing. Companies that can grow earnings and dividends through economic cycles tend to offer both income and resilience. That’s why equity income funds investing in dividend paying shares can make good long-term investments – although there’s no guarantees.

The M&G Global Dividend Fund, managed by Stuart Rhodes, seeks out global businesses with the potential for long-term dividend growth. This often involves accepting a lower initial yield in exchange for stronger future payouts. Companies unable to grow – or forced to cut – dividends are actively avoided, though this is not always possible across a broad portfolio.

Since its 2008 launch, the fund has consistently increased payouts, though past performance is not a guarantee of future results.

The manager builds a diversified portfolio by blending:

• Reliable growers: Defensive sectors like pharmaceuticals and food producers.
• Cyclical earners: Companies in energy or commodities with earnings that fluctuate but trend upward.
• High-growth firms: Businesses poised for rapid expansion through new markets or innovations.

Investing in funds targeting dividend paying companies can complement growth strategy-heavy portfolios and may appeal to investors seeking rising income through an income-paying ISA or drawdown SIPP. Its historic yield is 3.0%, with potential for future increases. Please note, yields are variable and not guaranteed.