It has been widely acknowledged that the US is leading the global recovery and recent data from the Federal Reserve has reiterated this view.
Any recent weakness in North America’s economy has been largely attributed to a particularly harsh winter, with a brighter weather forecast now expected to allow the recovery to resume.
In April the Bureau of Labor Statistics confirmed the economy had added 192,000 jobs in March this year, although the unemployment rate was unchanged at 6.7 per cent.
But investors should be mindful of ‘taper tantrum’, the negative market reaction expected as the Fed begins to wind down its monetary policy programme. At the current rate, it is expected that quantitative easing (QE) will end by October.
Andrew Humphries, marketing and communications director at St James’s Place Wealth Management, observes that investors were looking for signs that the US’s underlying recovery is “firmly in place”. He cites an “uneven start to the year”, which saw the S&P 500 index up only 1.3 per cent in the first quarter following a 30 per cent rally in 2013.
Keith Wade, chief economist at Schroders, says the US economy is “on track” to improve in the current quarter. He stands by Schroders’ prediction of 3 per cent growth this year.
But while employment figures, retail sales and auto sales numbers indicated that the US economy is strengthening, Mr Wade says housing has disappointed.
“Housing had been playing a big part in the recovery but it really slowed down in the second half of last year and it hasn’t really picked up again since. That’s something that we’d like to see come in and boost activity as well,” he noted.
In a speech in Washington DC on April 9, governor Daniel K Tarullo, who is a board member of the Federal Reserve System, spoke about the “very accommodative” monetary policy of the past five years as having contributed to the “moderate recoveries” in GDP and employment.
But he highlights that a corresponding upturn in wages is yet to emerge, with “only the earliest signs of a much-needed, broader wage recovery”.
One long-term theme Mr Wade identifies is investors coming out of dividend-paying stocks and into bonds, as interest rates and bond yields are predicted to rise following the end of QE. He suggests this could take place during the next 18 months to two years.
With initial fears about the outlook for North America at the beginning of the year having been allayed, on the whole, it seems the region is returning to a steady pace of growth. But investors will be keeping an eye on how the country’s recovery plays out and what impact it will have on other regional recoveries.
THE PICKS
Santander Premium US Equity fund
This fund dates back to December 2000 and has performed particularly well across three- and five-year periods. It ranks in the top three of the IMA North America sector across three years to April 10, having achieved a 46.87 per cent return for investors. Co-managers Toby Vaughan and Tom Caddick only took over the portfolio in January 2011 but have delivered a strong performance in that time.
M&G North American Value fund
Daniel White was appointed lead manager of this £111.3m fund in September last year following the departure of Richard Brody. Mr White and deputy manager Richard Halle have worked together on the M&G European Strategic Value fund since its launch in February 2008. The managers have a value-based investment philosophy that aims to achieve long-term capital growth through investment in securities of North American companies. For the five years to April 10 the fund has returned 127.67 per cent, placing it second in the IMA sector.
EDITOR’S PICK
JPM US Select fund
The £174.7m JPM US Select fund launched in 1995 and is ranked top quartile across one, three, five and 10 years in the IMA North America sector, delivering a 124.54 per cent return for the 10 years to April 10. It has been co-managed by Susan Bao and Tom Luddy since 2008, who were joined by Helge Skibeli a year later. The portfolio currently has a 23.7 per cent weighting to the telecom, media and technology sector, with Google and Apple among its top-10 holdings. The fund is also in the 2013 Investment Adviser 100 Club.
