View more on these topics

Navigating the challenges of US equities

US equities is a notoriously difficult market in which to succeed, as demonstrated by the lack of consistent outperformance in the sector.

Bestinvest’s recent Spot the Dog ranking of the worst-performing funds included 23 portfolios in the IMA North American sector. This is up from zero funds in the previous report and accounts for 38 per cent of the 61 funds in the sector.

Identifying active managers who can consistently beat the benchmark is difficult. Bestinvest places just two funds, UBS Growth and JPM US, in its best of breed category. However, active managers remain confident that the benefits of US equities outweigh the potential challenges.

UBS US Growth fund portfolio manager Grant Bughman says: “We have tried to take advantage of volatility when it causes valuations for our favourite, sustainable, dominant business models to be mispriced.

“But we also continue to manage risk rather closely and look to avoid companies whose futures are more closely tied to the direction of global demand.”

This approach saw the fund pull back from economically sensitive sectors such as energy, industrials and materials in the summer of 2011, while weightings in consumer discretionary and technology stocks were increased on attractive valuations at the end of last year.

Old Mutual North American fund co-manager Ian Heslop agrees there are significant challenges to actively investing in US equities.

He says: “I would argue the North American equities sector is one of the hardest sectors to get consistently right. It is just efficiency of the pricing mechanism in the North American equities market, it is very well researched and very quick to incorporate new information.”

Heslop, whose fund is first-quartile over three years, says an important part of the investment process is rotating the portfolio with changes in investor risk appetite. The managers attempt to determine what investors are likely to buy in the short term and position their portfolio in line with this at the start of the buying cycle.

He says: “We had been reasonably pro-market towards the end of last year but now you can safely say the portfolio is reasonably defensively placed, both at sector and intra-sector levels.”

Schroders US Alpha fund manager Joanna Shatney claims longer-term trends also make US equities an attractive proposition for active managers.

She says: “We believe the US is significantly better positioned over the long term than many developed markets because of the level of innovation and positive benefits of demographics that naturally position the US for growth.

Shatney says these factors, which she plays through overweights to the technology, healthcare and consumer discretionary sectors, will help US companies to deal with the short-term challenges thrown up by the global economic slowdown and the long-term problems created by the country’s looming fiscal cliff edge.

Premier Asset Management pooled funds investment director David Hambidge remains unconvinced by US-focused funds and has just 3 per cent of vanilla exposure to US equities in the Premier Multi-Asset Growth fund, with nothing in his other four funds.

Hambidge says: “As fund pickers, the US does not really float our boat because if you can name a worse active managed sector relative to its benchmark than the North American sector I would be surprised.”

However, Bestinvest senior adviser Adrian Lowcock expects to see the North American sector improve over the coming two years as weaker funds start to exit the market and remaining managers demonstrate their ability to outperform the benchmark.

“We will see a swing back to active managers at some point,” he says. “The key thing is it will change at some point because these things always swing around.”

Recommended

Sifa’s Ian Muirhead promoted to chairman

Sifa managing director Ian Muirhead has become chairman of the solicitor IFA organisation as part of management changes announced by parent company SimplyBiz. SimplyBiz acquired Sifa a year ago for an undisclosed sum. SimplyBiz joint managing director Matt Timmins has been chairing Sifa on a part-time basis since the acquisition last August, but says the […]

1

Skandia sets out adviser charging plans for life products

Skandia has set out which of its products will facilitate adviser charging post-RDR and outlined the older products that will continue to accept top-ups but without adviser charging. The company says Skandia Life’s core pension range will be developed to facilitate adviser charging. New business will continue to be directed through Skandia Life’s current personal […]

2

Standard Chartered agrees £217m settlement with US regulators

Standard Chartered has agreed to pay £217m to New York regulators to settle claims of alleged money laundering with Iran. The bank’s shares dropped as much as 24 per cent at one stage last week after the New York State Department of Financial Services accused the bank of hiding £160bn in transactions linked to Iran, […]

1

US probes seven banks over Libor scandal

Seven banks have been issued subpoenas in the US for their alleged manipulation of the Libor interbank lending rate. New York Attorney General Eric Schneiderman and Connecticut Attorney General George Jepsen are jointly investigating alleged manipulation of the London interbank offered rate by lenders. According to Bloomberg, they have requested information from JP Morgan Chase, […]

Pension savings-2015

Pension tax relief: parked (for the moment)

The national news agenda has been dominated by pension issues this month. For those that missed it (and there cannot have been many given that this was the lead story in spoken and written media), the Chancellor announced a decision to make no decision on pension tax relief in his 16 March 2016 Budget speech. To […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com