With its large population, innovative culture, strong legal framework and corporate governance, companies in the US can provide an excellent investment hunting ground. 'Echo boomers' (children of the baby boomers) are moving into their early 30s. An increase in the number of 30-somethings in the population has historically resulted in a stronger demand for housing, a larger workforce and an increase in consumer spending - all good news for the economy and stock market.
To benefit from this development Cormac Weldon and Stephen Moore, of boutique investment firm Artemis, are launching three new US Funds. Each fund has a different objective but will be run under the same process.
Fund Manager: Stephen Moore
Within this fund, the manager will employ a strategy of investing in shares he believes will rise in value over time (referred to as 'long' investing). Importantly, he will also look to profit from shares he believes will fall in value (referred to as ‘shorting’). If the latter strategy proves positive, it could help reduce volatility. However, this is a higher-risk strategy which relies on the fund manager making the right calls. If he gets it wrong he could lose money even in a rising market. The fund will be able to have up to 150% in long positions (the fund can invest borrowed money to take the fund over 100%) and up to 50% in short positions.
Please also note the US Extended Alpha fund carries a performance fee of 20% on any outperformance of the fund’s benchmark (S&P 500) on an annual basis. Further details of which can be found in the Key Investor Information Document and fund prospectus.
Fund Manager: Cormac Weldon
This fund aims to be a core US equity fund with a bias to large and medium-sized companies, however there are no restrictions on size. The fund will hold between 60 and 80 holdings.
Fund Manager: Cormac Weldon
This is a concentrated ‘best ideas’ fund. It is more focused than the US Equity Fund with between 40 - 60 stocks which means each holding can have a greater effect on performance but it also increases risk. The fund will invest across higher risk smaller companies, as well as their medium and large counterparts. The fund is likely to be more volatile than the US Equity Fund, but with the potential for higher returns.
Cormac Weldon heads the Artemis US equity team. From 2001, to when he moved to Artemis in January this year, he managed a number of Threadneedle funds with a US focus. The Threadneedle American Select Fund steadily outperformed the IMA North America Sector with returns of 101.03% compared to 67.32% for the peer group.
Stephen Moore launched the Threadneedle American Extended Alpha Fund in 2007 and was lead manager until his move to Artemis in 2014. Over his tenure, the fund performed well, returning 100.52% compared with 59.38% for the IMA North America sector, although past performance is not an indication of future returns.
The 7 strong Artemis US equity team, comprising fund managers and analysts, conducts over 700 company meetings each year in London and the US. They use information gained from these meetings alongside external research to determine if their view on a particular company differs from that of other investors, aiming to identify stocks which they feel have been misjudged. The managers believe that buying good quality stocks at discounted prices will be rewarding over the long term.
They look for economically-sensitive companies, particularly focusing on businesses that perform best during 'growth' phases of the economy. They also aim to identify emerging themes - determining which companies are likely to benefit or suffer, for example, exploring how Obama Care might affect the hospital industry.
In the US there is a general preference for companies to buy back shares rather than pay dividends. However, the managers consider the yield produced by a stock to be important as it can provide a boost to the total return of the fund. They look to invest in companies which aim to grow their dividends, which they feel are better value currently than stocks which already have a high yield. Please note dividends are variable and not guaranteed.
The team evaluates a potential investment from a number of perspectives; the business model, including barriers to entry and customer demand; the financial model, including the resilience of the company’s balance sheet and its profit and loss; company management; and how much value they feel is already reflected in the stock price. Throughout this process, the team is seeking to model the impact various scenarios might have on a company’s share price. A key element of their approach is the belief that risk is only worth taking if the potential reward significantly exceeds the potential loss.
Our view on these funds
The US is a difficult sector for a fund manager to add value. Stocks tend to be highly researched, making it difficult for one manager to have an edge over another. Our analysis suggests the US is currently fairly expensive which will make it harder for the managers to locate undervalued stocks. However, as part of a balanced, long term investment strategy, investors may wish to have some exposure to US stock markets.
Investors wishing to invest at launch can place their instruction online or over the telephone with one of our dealers up to 5pm on 18 September. At present, these funds will not be added to the Wealth 150 list of our favourite funds across the major sectors, though we will monitor performance and inform investors if our views change.
|Annual percentage growth|
| Sep 09 -
| Sep 10 -
| Sep 11 -
| Sep 12 -
| Sep 13 -
|IMA North America||9.1%||9.6%||16.5%||21.4%||15.25%|
|S&P 500 TR||15.9%||8.8%||21.4%||21.2%||17.3%|
|Threadneedle American Extended Alpha||6.0%||15.8%||24.8%||18.0%||13.1%|
|Threadneedle American Select||3.8%||15.0%||18.6%||17.6%||15.8%|
Past performance is not a guide to future returns. Source: Lipper IM* to 01/09/2014