Investments 

Are US equities still the main game in town?

  • Learn about the performance of US funds
  • Gain an understanding of which sectors are proving propular with managers
  • Be able to describe the challenges facing the region
CPD
Approx.30min

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.

A look at the Baillie Gifford American fund highlights this positioning. All of the Faang names, bar Apple, sat among its top 10 holdings at the end of October, representing 22.5 per cent of the vehicle’s assets.

These companies have done much to drive US equity market movements – both up and down – in 2018 and earlier years. But the Faangs are now proving divisive, and many of them face company-specific controversies, from tax allegations to privacy concerns. As such, they could face challenges such as regulatory action, or a loss of faith among consumers.

These issues, and broader differences of opinion on the direction of equity markets, have left investors divided on how these shares will perform in the future. But whether they crash, plateau or again rise to new heights, the decision of whether to back them or not will most likely have a material effect on returns. 

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. In its November survey of global fund managers, Bank of America Merrill Lynch found which equity region to be the most popular among respondents?

  2. Of the 113 IA North America sector members with a five-year track record – including passives – how many active funds managed to beat the benchmark?

  3. Which fund is described as having the ability to short-sell equities?

  4. What is the Morgan Stanley fund’s biggest sector weighting?

  5. Which of the Faang companies is ommitted by the Baillie Gifford American fund?

  6. Which fund is described as “mostly invests in small and mid-cap stocks”?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Learn about the performance of US funds
  • Gain an understanding of which sectors are proving propular with managers
  • Be able to describe the challenges facing the region

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