Fund briefing: United States

Published by Rob Griffin on 01 March 2016.
Last updated on 10 March 2016


As well as being one of the most powerful nations on the planet, it’s also home to a string of global household names such as Apple, Google and Amazon.

Barely a day goes by without television commentators anxiously debating the possibility of further interest rate hikes in the US, while an army of analysts spend virtually every waking hour poring over the balance sheets of its listed companies.

The good news is they’ve had plenty of reasons to feel upbeat over the past couple of years, thanks to a raft of positive economic, political and stockmarket news, according to Patrick Connolly, a certified financial planner with Chase de Vere.

“Investing in the US has given people the opportunity to access some of the best-quality and most profitable businesses in the world,” he says. “It is also likely to be home to many of the next generation of market-leading companies.”

As well as an accommodative policy by the US Federal Reserve, designed to boost economic growth, there has been positive US data with employment figures looking good, the housing market doing well, consumers remaining confident and a general renaissance in manufacturing.

The excavation of shale gas and oil has also helped the US move towards a state of energy independence, while oil price falls mean individuals have had more money in their pockets, and businesses have been able to reduce their costs and improve operating margins.

Of course, that doesn’t mean investors are on a guaranteed road to riches – although many US stocks have performed admirably, there has been a shakeout of valuations over the past year and question marks remain about the country’s longer-term economic prospects.

Darius McDermott, managing director of Chelsea Financial Services, is not overly enthusiastic about the US, although he acknowledges that it has held up a lot better than the UK since markets started heading south last year.

“It’s not looking as bad as most other areas, but valuations aren’t that compelling, even after the sell-off,” he says. “There is also a lot going on, which could further spook markets, both globally and domestically.”

Mr McDermott suggests China and the price of oil top the list of global concerns. “Add to that the US election later in the year and the US Federal Reserve having to get interest rate rises exactly right, there is a lot that could go wrong,” he adds.

Invest for success in 2016.

Despite the importance of the US on the world stage, the country is overlooked by UK investors who have only committed £37 billion to the IA North America sector – that equates to 4% of total funds under management, according to data compiled by the Investment Association.

This compares to the £163 billion held in the hugely popular IA UK All Companies sector (17% of the total under investment), the £78 billion (8%) in IA Global and the £50 billion that has been invested in IA Europe excluding UK (5%).

Those who have turned their backs on the US will have missed out on decent returns, with the average fund in the sector having delivered 58% over the past five years – compared to 32% by IA UK All Companies, according to Morningstar data compiled to 3 February 2016.

For investors who are sold on exposure to the US, there are two sectors that focus on this region: IA North America – which has more than 120 funds from which to choose – and IA North American Smaller Companies, which numbers around 20.

However, it pays to choose carefully as there is a vast difference between the top and bottom of the performance tables.

While the standout names in IA North America have delivered a return in excess of 50% over the past three years, the worst have actually lost money over the same period. Considering their investment philosophies and track records, therefore, is essential.

The sheer number of analysts following the US makes it difficult to find funds that consistently beat the S&P 500 index, so those wanting broad US exposure could consider a passively managed fund, suggests Mark Dampier, head of research at Hargreaves Lansdown. 

“For those seeking an actively managed fund with the prospect of delivering outperformance over the long term, we believe funds investing more in higher-risk smaller and medium-sized companies could be considered,” he added.

Whichever route you choose, the longer-term prospects look reasonably good – even when you take into account the various economic concerns, according to Julian Chillingworth, chief investment officer at Rathbones.

“It’s still the biggest stockmarket in the world, has a lot of attractions and will continue to be in the vanguard of global growth for many years to come,” he says. “It’s a market that you simply can’t ignore.”

Read A beginner's guide to investing in the stock market.

Fund to watch: AXA Framlington American Growth fund

Stephen Kelly’s AXA Framlington American Growth fund focuses its attention on large and medium-cap US, Canadian and Mexican companies that show above-average profitability, management quality and growth.

The portfolio consists of just over 80 holdings, with the 10 largest names accounting for a quarter of its assets under management.This list includes international giants such as Apple,, Facebook and Royal Caribbean Cruises.

More than half the fund is in large companies, classified as those with market capitalisation greater than $15 billion, while 39% is invested in medium-cap stocks of between $1 billion and $15 billion.

As far as sectors are concerned, the fund’s highest allocation is to technology (25%), followed by health care and consumer discretionary names (21%), and financial services (11%).

The fund is highly recommended by Patrick Connolly, a certified financial planner with Chase de Vere, who classes it as a genuine growth fund that typically has a high weighting in technology stocks.

“This fund has periods of strong outperformance, particularly when the US and global economy is doing well, and periods of significant underperformance,” he says.

“However, the long-term record is good. If the US continues to do well, then this fund should do well.”


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