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Are US equity funds all about tech?

This article is part of
Guide to US Equities

“This can present a real dilemma for advisers and wealth managers structuring portfolios for clients seeking income, as it naturally leads them to be underweight the largest equity market on the globe,” warns Mr Hollands. 

Mr Willis agrees. 

He confirms: “The US equity market pays out a significant amount of dividends but the culture of dividend paying is far more entrenched in the UK, with the FTSE100 yielding around double that of the S&P500.”

Brexit 

Experts believe that prolonged uncertainty caused by UK’s looming departure from the EU has given US equity funds a competitive advantage over UK funds. 

Mr Kapadia explains how US investments have performed better than UK ones in recent years in part due to the weakness of sterling against the US dollar since the UK referendum in 2016. 

“[US investments] dominate the tech sector, with Microsoft and Apple to name just a couple of companies being the big driving factors for this.”

Mr Willis says: “Whilst every country faces uncertainty, the UK is particularly vulnerable for the moment thanks to the ongoing uncertainty over Brexit.”

He thinks while the US faces problems of its own, there are strong arguments for having a diversified portfolio and investing internationally. 

He adds: “Any investor looking to invest in the US instead of the UK will have a far larger universe of companies to invest in as well as getting exposure to some of  the fastest growing companies in the world."

But he warns that “If you’re looking for income though, look elsewhere”. 

Mr Kapadia strikes a more optimistic note on the future trajectory of UK equities.

He says:  “The main concern over UK equities is how Brexit will look in the future. It will have a quick and sudden impact but we expect this to balance out despite the doom and gloom being predicted by some.”

He says this will mean there are many bargains for investors to take advantage of, and in doing so investors will reap the rewards as you will be able to buy low and sell high. 

He adds: “Therefore, although US equity funds still command the upper hand, you should not write off what the UK has to offer.”

saloni.sardana@ft.com