With the euro under pressure during May 2010 and concerns about slower growth in Asia, S&P Equity Research believes that choosing a global mutual fund based solely on a fund's track record comes with risks as most funds that outperformed in 2009 underperformed in 2008.
Oppenheimer Global Fund Ticker:(OPPAX) (5*) ranks as an S&P five-star Global Equity fund because of its excellent track record, ownership of stocks that S&P Equity Research views on average as having financial strength, and because the fund has a relatively low expense ratio. S&P believes it is important to assess a fund's underlying holdings in addition to its performance, risk, and cost considerations, and S&P's unique ranking methodology incorporates all of these analyses in establishing a mutual fund ranking.
With the euro under pressure during May 2010 and concerns about slower growth in Asia, S&P Equity Research believes that choosing a global mutual fund based solely on a fund's track record comes with risks as most funds that outperformed in 2009 underperformed in 2008. The more insight you have into management's investment style, how long it has been employed and the costs you are incurring by owning the fund, the more comfortable you will be in making decisions for 2010 and beyond.
S&P thinks this large-cap growth fund has achieved success with a consistent investment approach that seeks out high-quality, globally-competitive companies with sustainable earnings and cash flow. Management believes this enables them to benefit from certain long-held themes such as mass affluence, an aging population, and new technologies.
Though May 2010, OPPAX had generated a one-year total return of 17.6% and outperformed its global large-cap growth peer average's gain of 12.7%. The fund's three- and five-year total return also outpaced its peers, with relatively strong returns in 2005, 2006, 2008 and 2009. Meanwhile, OPPAX generated an above-average Sharpe ratio and an in-line standard deviation.
This fund is managed by Rajeev Bhaman, who has been at the helm since 2004, and supported by Oppenheimer's global research team. While the fund's inception was 40 years ago, S&P focuses more on Bhaman's record and believes the stability of current management helps curtail risk that the fund's investment approach may have shifted, potentially making the past performance metrics invalid.
Bhaman's approach is long-term in nature and involves taking what he views as manageable risk by investing in financially sound companies with opportunities for profit margin expansion, but that trade at favorable valuations. Despite, at the end of March, having approximately 40% of assets invested in companies based in developed Europe where there are currency, credit, and overall macroeconomic concerns, Bhaman considers that the domicile of holdings is less relevant than the driver of earnings. In an interview with S&P in late May, he noted the fund was invested in multinationals with most of their earnings from outside of continental Europe that can have margin expansion as the euro declines in value. In addition, the fund had 37% of assets in companies located in the United States.
Five of the ten largest positions as of March 2010 are currently ranked by S&P Equity Research as Strong Buy (5-STARS) or Buy (4-STARS); STARS is an independent and qualitative approach to stock selection employed by S&P's global research team. In addition, as a whole, the portfolio is deemed by S&P as incurring relatively low risk considerations, with most of the portfolio having above-average S&P Quality Rankings, a metric that assesses dividend and earnings growth and consistency, and having high investment-grade S&P Credit Ratings on its parent company. S&P Credit Ratings Services operates independently from S&P Equity Research.
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LVMF [MC Paris *****], a stock currently ranked as a Strong Buy and with an above-average A- Quality Ranking, both from S&P Equity Research, was one of the fund's largest position earlier this year. In addition to its exposure to the mass affluent trend in Asia and robust earnings growth in the eyes of fund management, the European maker of luxury apparel and spirits is considered to be undervalued by both fund management and S&P Equity Research.
eBay [EBAY 22 *****] is another of the fund's major positions that has a current Strong Buy recommendation from S&P. Fund management views the company, which also has an average S&P Quality Ranking of B+, as an attractively valued dominant global business that is benefitting from new technologies to network and sees the Paypal segment as creating opportunities for strong earnings growth.
In addition to assessing the stocks in a mutual fund and performance metrics, investors should focus on the cost implications of owning a particular fund. OPPAX has a net expense ratio of 1.3%, lower than its peer average of 1.7%. Meanwhile, the fund has incurred a significantly low turnover rate, recently at 8%. S&P thinks the fund's long-term focus—stocks are selected with a three-to-five year time horizon—keep trading costs limited. However, the A share class of the Oppenheimer fund, open to new investors for only $1,000, has a 5.75% front-end load.
S&P believes the strength of Oppenheimer Global Fund; A is more than just its relatively strong long-term performance record. This large-cap growth fund also stands out for its long management tenure, modest expense ratio, and recent ownership of a number of companies with strong financial profiles.
As with all investments, S&P believes that investors should look to make selections that are suitable for their objectives and risk profiles. To learn more about the S&P fund ranking methodology, see http://www2.standardandpoors.com/spf/pdf/equity/MFMethodology.pdf
Note: The fund rankings in this article - from five star (best) to one star (worst) - are quantitatively derived from performance, holdings, risk, and expense analysis. The stock rankings, or STARS - using a scale of 5-STARS (strong buy) to 1-STARS (strong sell) - are based on S&P equity analysts' qualitative and fundamentally-driven outlook for the stock over the next 12 months.
Data through May 31, 2010. *Total returns include reinvested dividends and capital gains, all annualized; calculations do not reflect the effect of sales charges. Source: S&P Mutual Fund Reports. S&P Mutual Fund Rankings reflect an analytical mixture of past performance metrics with an assessment of a fund's holdings and cost factors. An S&P five-star fund is ranked in the top 10% of its Category. The S&P fund ranking is accurate as of June 10, 2010, but is subject to change at any time. For important disclosures, please go to www.standardandpoors.com, and click on “Regulatory Affairs.”
