Fund selectors have downplayed Morningstar research that suggests poor stock selection has been plaguing some US equity funds.
The fund research group has recently downgraded several US equity products, including four small and mid-cap Schroders funds run by Jenny Jones and the M&G American fund, managed by Aled Smith.
Morningstar cited “weaker” and “disappointing” stock selection as prime reasons for downgrading the funds.
But multi-managers last week said current US market conditions were no more difficult than at any other time, dismissing suggestions of a wider problem in US active funds.
Instead, they pointed to a recent “rotation” in markets away from growth stocks and in favour of value positions.
Simon Evan-Cook, manager on Premier Asset Management’s multi-asset team, argued that options were increasing for investors looking for US exposure.
“There seems to be a bit more choice – either US-based funds are coming in or groups are seeing a gap in the market for something which can outperform,” he said.
“The US sector doesn’t really have any big funds taking all the assets as in other sectors.”
The manager added that the US’s leading stock index, the S&P 500, was “notoriously hard to outperform, but only if you’re picking S&P 500 stocks”.
He highlighted two of Premier’s selections in US equities as having a bias to small and mid-cap stocks, the Hermes US Smid Equity fund and the Nordea US All Cap fund.
Ryan Hughes, fund manager at Apollo Multi-Asset Management, said: “It is no more difficult today [to outperform in the US] than at any point in the last decade.
“The trouble people have had in the past few weeks is the Threadneedle team – which did outperform consistently – has left and they are looking for other funds, and that’s not easy.” However, Mr Hughes said many US equity funds may have suffered in recent weeks as markets have “rotated”, resulting in short bursts of outperformance from different sectors.
“The energy sector is massively unloved and in the past three weeks has really outperformed,” he said.
“When we see that sector rotation it makes it very difficult for US managers – but this is not just confined to the US.”
T Bailey’s Elliot Farley, senior fund manager on the company’s three multi-manager products, said the list of outperforming funds was always short for the US, but also highlighted the recent market rotation as a headwind for short-term performance.
“Growth stocks are starting to look a bit more stretched,” Mr Farley said. “The US economic recovery has been confirmed and is accelerating, and valuations don’t look stretched versus history.”
