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Neptune US Opportunities Fund research update

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

The US stock market has continued to perform well over the past year, despite many commentators suggesting it looks overvalued. In our view the shares of US companies look fair value, but investors have been reassured by the strength of the economy and the number of large, global, well-known businesses listed there.

Felix Wintle, manager of the Neptune US Opportunities Fund, is optimistic for the year ahead. The economy has proved resilient and in his view US companies are well-positioned to continue growing earnings. He suggests this could lead to a further period of dominance for the US over both developed and emerging counterparts.

Furthermore, US consumers should benefit from cheaper oil, which has halved in value since the middle of 2014. This should act as a tax cut for consumers - the average cost of a gallon of gasoline in the US was $3.34 last year, compared with $2 today. Felix Wintle estimates this will put an additional $1,000 per year into the pockets of the average US family. This is a significant boost to discretionary income for a country where consumption accounts for 70% of the economy.

With this in mind the fund currently has a bias towards companies generating earnings from the domestic US economy. This includes restaurants and retailers, as well as the healthcare and technology sectors, which the manager believes are set to capitalise on a new wave of innovation. In contrast, there is less exposure to commodity-related stocks as he is not convinced many companies have reformed enough to undergo a sustained recovery after a period of poor performance.

Felix Wintle is also mindful that in an environment of low interest rates and low bond yields investors are likely to remain hungry for income. He has therefore adopted a 'barbell approach' and as well as including growth-focused companies in the portfolio he has added those offering a high yield. This includes companies in the utilities and real estate sectors. The fund manager has the flexibility to invest in higher risk smaller companies should he see fit.

The fund underperformed the S&P 500 Index and the average fund in the IA North America Sector over the past year. The manager attributes this to poor performance from some technology stocks during the second quarter of 2014, and being overly cautious on the outlook for industrial and consumer sectors in the middle of the year - he reduced exposure just before performance improved. He operates a concentrated portfolio which allows each holding to have a significant impact on performance, but this is a higher risk strategy.

In an effort to improve performance in future the manager will make fewer adjustments based on economic news. The fund has been positioned to benefit from a strong US economy, and while the manager continues to believe the economy will remain strong he will not attempt to second-guess short-term events.

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Our view on this fund

We view the decision to focus less on short-term economic news and more on the prospects for individual companies as sensible. Indeed, the fund struggled in the volatile stock market environment seen since the financial crisis and this is partly due to poor market timing. Felix Wintle became too cautious when stock markets were still rising, before becoming positive again just as they started to fall. Our analysis also suggests stock selection has been poor.

Despite lacklustre performance recently Felix Wintle has outperformed the S&P 500 Index and the average fund in the IA North America sector* since he took over the fund in August 2005. However, we would like to see a sustained period of improved performance before reconsidering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors.

Performance of the Neptune US Opportunities Fund over the past ten years

Past performance is not a guide to the future. Source: Lipper IM to 02/02/2015

Annual percentage growth
Feb 10 -
Feb 11
Feb 11 -
Feb 12
Feb 12 -
Feb 13
Feb 13 -
Feb 14
Feb 14 -
Feb 15
Neptune US Opportunities 16.07% -4.66% 17.51% 20.31% 12.18%
S&P 500 20.58% 5.37% 17.74% 13.33% 28.62%
IA North America 19.67% 2.41% 14.58% 17.12% 20.48%

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.
Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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