The US markets are in their eighth consecutive year of positive returns. With investors perhaps fearing a mean reversion, North American funds have struggled to see strong inflows to correlate with what is going on across the Atlantic. Chart 1 shows the past year’s inflows and outflows into the North America sector.
According to the Investment Association, the sector (the ninth largest sector of all 36) has a total of £43.3bn in funds under management. The North American Smaller Companies sector is much smaller with £1.8bn under management. The latest data from the Investment Association shows the North America sector saw outflows of £123.8m – the fourth worst-selling sector in August.
One potential reason could be due to the ability to find value. Adour Sarkissian, manager of the £124.6m Sanlam Four US Dividend Income fund, says the dividend style significantly underperformed in 2015. There have been signs of a similar trend emerging in recent months, but the manager is optimistic.
“While the US has not traditionally been as dividend-friendly as Europe, we are continuing to witness encouraging behaviour from corporates, which are increasingly flush with cash,” Mr Sarkissian says.
“We remain highly confident in our positioning in undervalued companies, which we expect to outperform over the medium to long term.”
The fact remains that North American active funds do not sell as well as their global or UK counterparts, with many investors preferring tracker products in the belief that the market is hard to beat. Fund performance tells a different story. Table 1 shows the top performing unit trusts and investment trusts over five years based on an initial £1,000 investment according to FE data.
What is immediately clear is the outperformance of open-ended funds over five years. The average return across the North America and North American Smaller Companies sectors is 18 per cent annualised – giving the investor £2,299 over five years based on the initial £1,000. The top performer is an unusual fund in that it is not a country-specific fund but sector-specific. The Julius Baer Multistock Health Innovation Fund has a focus on healthcare, which is one of the biggest industries in the US – but one possibly at risk from a Clinton presidency.
It is not often that you see open-ended funds outperform investment trusts in a bull market, but such is the case with North American funds, although investment trusts have by no means performed badly. The average trust saw a 15.3 per cent annualised return over the past five years.
