Since the lows of 2009, the US equity market has had an incredible run. Over the past six years it has returned just shy of 200 per cent in sterling terms, while the FTSE 100 is up 137 per cent over the same period.
The past two and a half years have been particularly strong for the US, with its stockmarket remaining close to its all-time highs. We’re not in tech boom territory, but we’re certainly nearer the end of the bull market than the beginning.
Valuations are now looking stretched, leaving relatively few undervalued stocks to choose from. So is it worth investing in the US today?
I wouldn’t suddenly pile all my money in now but I won’t be selling either. S&P 500 share buy-backs have reached their highest level since 2007 and continued strength in this activity could potentially remain supportive of equity performance for a while longer, as could a continue rise in mergers and acquisitions activity. The Federal Reserve will also remain supportive, taking a softly-softly approach to rate rises (eventually).
However, finding an actively managed US equity fund that can consistently beat the market is extremely difficult. Just last month, another report came out stating that 84 per cent of actively managed funds invested in US equities failed to beat the S&P 500 over the past year. Indeed, it is the market where passives regularly do better.
So it’s always exciting when you come across an actively managed US equity fund that has consistently delivered. One such vehicle is Brown Advisory US Flexible Equity.
Managed by Hutch Vernon and his co-manager, Mike Foss – who are supported by a team of 21 fund managers and analysts – this unconstrained, multi-cap US equity fund was launched in the UK last year. Its strategy is based on a parallel fund, managed by the duo for more than 20 years in the US.
Messrs Vernon and Foss use a bottom-up, flexible strategy, with a bias to value that also looks for growth opportunities. They mainly seek out undervalued medium-to-large improving businesses, which rewards the fund with good liquidity and decent growth prospects. They invest in a wide universe of US stocks and have a low turnover. Companies with management change offer particular appeal.
By keeping its mandate flexible, the fund, which is concentrated in 35 to 55 stocks, can invest in companies that offer both value and growth opportunities, which means the fund has the potential to do well in all types of market scenarios. As a result, it is one of the few US equity funds that has consistently outperformed the S&P 500 over long periods. However, the fund is likely to underperform if the market becomes too focused on growth, though the managers’ approach tends to result in the fund falling less than its peers when markets go down.
Finding funds with long-term outperformance of the S&P 500 is very difficult and this strategy has done just that over 25 years. This is a strong candidate for those looking for a core US equity fund.
Darius McDermott is managing director at FundCalibre
