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Asset Allocator

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For reasons that slightly bewilder Asset Allocator, markets tend to fixate on the results of the US midterm elections.

But in the spirit of being topical, we decided to look under the bonnet of global equity funds to examine how many of them are essentially US equity funds with a tail of stocks listed on other markets.

Of course very many of the fund managers with large US exposure will have invested in individual stocks that happen to be listed on that market.

The average IA Global fund has a US exposure of 57 per cent but there are some funds which hold a lot more than that (and we mean a lot).

The fund in the sector with the largest exposure to US equities is Guinness Global Innovators, with 82 per cent, while the second largest is Liontrust Global Smaller Companies, managed by industry veteran Robin Geffen and which has 81 per cent of its capital deployed into the US equity market. 

Neither of those funds are owned by any of the allocators on our database and neither has had a happy time this year.

The global fund held in our database with the biggest exposure to the US is the GAM Star Disruptive Growth fund, which is held in the portfolios of two of the allocators we cover and which has a 76 per cent exposure to the US. 

Interestingly, both of the DFMs who acquired this fund did so in the first quarter of 2022. 

The underperformance they have seen can be attributed to fairly specific circumstances (for example as a small cap fund, the Liontrust fund is obviously very heavily exposed to growth stocks which have struggled).

But sitting just outside the top 10 biggest US holders is Fundsmith Equity, which is the most popular global fund in our database, held as it is by seven DFMs and with a 74 per cent exposure to the US.

As we previously mentioned, Fundsmith has had a net increase in the number of DFMs holding it this year although Terry Smith’s focus this year, including his decision to take stakes in Meta and Apple, has raised a few eyebrows.

The Morgan Stanley Global Brands fund is a product created by a former colleague of Terry Smith from his stockbroking days and the similar investment styles are borne out by that fund having an almost identical exposure to US equities.

That fund is owned by two of the allocators in our database.

Earlier this year there was a slight ‘woe is me’ approach to US equities in some corners.

But of course for sterling denominated investors, owning dollar-based revenue streams is almost a cheat code for 2022 as the pound has fallen significantly against the greenback.

As the chart below shows, North American equities have comfortably outperformed the rest of the world this year - including, for all the talk of a value resurgence, the UK.

But any view on the merits of the US equity market may also be a call on wider equity markets, due to the US market continuing to trade at a premium to the rest of the globe.

And if the markets do perform bullishly in the near term, that change to investor risk appetites would likely prompt some dollar weakness.

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