American resurgence
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Sales of North American funds have rocketed as US companies surpass expectations, report Chris Salih
Investing in North America has never been a favourite among the adviser community but recent statistics from the Investment Management Association show that sentiment is changing.
Sales in North American funds jumped more than fivefold in February to a record £222m compared with the average for the last 12 months of £41m.
The sector was fourth on the best sellers’ list in February, behind strategic bonds, UK absolute returns and the global sector. In January, the US was 25th on the list.
The sector is slightly down in terms of average returns over the past three months. Over 12 months, the sector is up by 4.3 per cent on average, compared with sectors such as UK all companies and UK equity income which are up by an average of 8.5 and 7.1 per cent respectively.
Melchior North American opportunities fund manager Peter Kay says he is not surprised by the news, pointing to the fact that while poor housing data and a slowly recovering labour market appear to grab the head-lines, the lead indicators for the US economy remain strong.
He says: “US companies are in great shape. For several quarters, earnings estimates have surpassed expectations by a wide margin. In addition to monetary expansion, we have witnessed a rotation by investors out of other assets into equities, which will provide fuel for the next stage of the bull market. A key driver for this will be valuation differences between assets.”
Alliance Trust North American equity fund manager Matt Strachan says there is a general acceptance that people are underweight in North America. He says the sector was one of the best performers towards the end of last year and that one of the best reasons for investing in the region is its fundamental strengths rather than short-term momentum.
He says: “Although the US starts the year with positive economic momentum and signs of jobs recovery, the surging federal deficit has yet to be tackled and, with QE2 due to end in June, the market may struggle to make significant further gains this year. Behind the headlines, what is on offer is a wealth of well run companies on attractive valuations and the best access to the next invention and growth companies of tomorrow. They are the real strength of America and the best reason for investing in the sector.”
Chelsea Financial Services managing director Darius McDermott says much of the interest in the US is down to the underperformance of emerging markets funds.
He says: “The UK and the US are down by 1 per cent over three months but emerging markets have fallen by around 7 per cent. Investors will notice things like that.”
McDermott says 4 per cent of his firm’s book is in North America compared with around 45 per cent of the MSCI world index in the sector.
He says: “Do not forget that US funds have spec-tacularly underperformed, there have also been currency issues that have affected the performance of US funds. The fact is that the US - and a number of other developed economies - now have more attractive company valuations in comparison with emerging markets.”
Hargreaves Lansdown senior investment analyst Meera Patel says: “We have seen a pick-up in the US in recent months but I expect that you will see a jump in sales of other less riskier assets such as UK equity income in the future. Do not rule out emerging markets in the longer term though.”
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