Introduction
All eyes are on Federal Reserve chairwoman Janet Yellen, who is expected to raise rates after the second quarter of 2015.
In the past 12 months to February 18, the S&P 500 returned 25.06 per cent, ahead of all other major regional indices, with only the MSCI World coming close as it generated a 16.74 per cent return over the same period. The FTSE 100 only managed a paltry 5.13 per cent return in the last year, while the MSCI Europe ex UK index posted a disappointing 3.72 per cent, according to FE Analytics.
Figures from the Investment Association reveal that North America was the only region to experience a net retail outflow of £443m in 2014, compared to total net retail sales of £1.2bn in 2013.
The latest Henderson Global Dividend Index reports that global dividends climbed 10.5 per cent to hit £1.167trn last year, with the US the main driver of that growth. Henderson points out that North America added $52bn (£33.8bn) to its 2013 contribution to global dividends, as every sector (other than mining) increased its dividend.
But with the US dollar strengthening over the past six months, returns are likely to be affected in 2015.
Kully Samra, managing director at Charles Schwab UK, suggests the US economy is in “self-sustaining expansion mode”.
In a recent note, he explains: “For the past several years investing has revolved around a fairly consistent story: the US economy has been recovering, the Fed has been easing, and there haven’t been many attractive options, therefore buying US stocks was a rewarding call.
“But the story appears to be changing. The US economy is expanding in a self-sustaining fashion, the Fed is looking towards tightening, and the options outside of the United States are becoming more attractive.”
Mr Samra insists he is not “turning bearish” on US stocks, but claims that gains will be harder to come by.
He says: “US stocks typically like to climb a ‘wall of worry’ and expectations for the US economy are higher than they have been in several years, meaning a relatively low ‘wall’ for the time being.
“Second, for investors who have remained well-diversified… there’s likely not much to do except staying the course. But for those investors who have let their portfolios tilt heavily towards US equities, we believe now would be a good time to create a more balanced portfolio by adding some international equity exposure.”
Marcus Brookes, head of multi-manager at Schroders, holds a positive view of the US economy, with its falling unemployment rate and signs of wage growth, but he favours stockmarkets in Europe and Japan over the US’s.
He elaborates: “As bullish as we are on the US economy, we think [this bullishness] is already in the price. It’s not new news that the US has had a fantastic recovery and we think returns from the US market will be slightly stodgy from here.”
THE PICKS
JPMorgan US Select
Co-managers Susan Bao, Thomas Luddy and Helge Skibeli, who invest in a portfolio of North American securities for capital growth, run this offering. The £263.1m fund was launched back in July 1995 and has a long track record of outperformance. It is top quartile in the IA North American sector over one, three, five and 10 years, having returned an impressive 172.02 per cent in the 10 years to February 19, compared to the sector average of 131.38 per cent. Its five-year return is equally impressive, delivering 107.36 per cent, against the sector average of 89.66 per cent, according to FE Analytics.
GAM Star Capital Appreciation US Equity
This fund has clocked up several years of outperformance. Over three and five years to February 19 the fund has achieved top-quartile performance in the IA North America sector. FE Analytics shows that it delivered a return of 98.96 per cent over five years, compared to the 89.66 per cent sector average. It invests in US equities and has an emphasis on smaller companies with high earnings growth potential.
EDITOR’S PICK
Old Mutual North American Equity
Run by the highly experienced Ian Heslop, alongside Amadeo Alentorn and Mike Servent, this £612.3m fund seeks long-term capital growth by managing a portfolio invested in North American stockmarkets. The portfolio currently has 205 holdings, with Home Depot, MasterCard and Verizon Communications among its top 10. The trio’s strategy has seen the fund outperform the IA North America sector over several years. In the 10 years to February 19 it has clocked up a highly respectable 156.87 per cent return, compared to the sector average of 131.38 per cent.
