Those who maintain conviction in US stocks have another difficult decision to make, because they remain a tough hunting ground for stockpickers. This comes down to two main factors: the efficiency of the market, and its strong performance.
Active managers will argue they can provide better protection of capital at times of volatility than passive funds. But even this argument struggled in the final quarter of 2018: the average IA North America fund lost 7.4 per cent from the beginning of October to December 10 versus the S&P 500’s 6.1 per cent fall in the same period. Active managers have also continued to struggle over a longer timeframe.
The last instalment of the S&P indices versus active funds scorecard research found that, in the year to mid-2018, 70 per cent of euro-denominated US equity offerings failed to beat the S&P 500. This rose to 92 per cent over five years, and 98 per cent over a decade.
A glance at the performance within the IA North America sector to the end of November shows the benchmark remains a formidable target for active funds, even after the sell-off. The S&P 500 delivered £1,962 from a £1,000 lump sum over the five years to the end of that month.
Of the 113 IA North America sector members with a five-year track record – including passives – just 52 active funds managed to beat this benchmark. That shows that picking the right manager is no easy feat.
Backing the right horse
With this in mind, we have examined the strongest performers from the sector over the past five years, as outlined in Table 1. Our analysis takes in both open-ended funds and investment trusts, though only the former have made it into the top 20.
The identity of the top performer points to a major dividing line for those investing in the region. Baillie Gifford American has returned £2,613 from a £1,000 lump sum over five years, and also tops the table on a one and three-year basis. Over a decade it lags some of the other best performers but still sits among the top 10 names.
The fund’s top positions offer some explanations about the drivers of performance. Alongside its practice of running concentrated, low-turnover portfolios, Baillie Gifford has also been known for backing strong-performing growth names in recent years. This has been most notable in the US, where the company has benefited from heavily backing the so-called Faang stocks – Facebook, Amazon, Apple, Netflix and Google parent Alphabet.
