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North America sector

North America sector

Funds which invest predominantly in the shares of North American companies. Most place an emphasis on capital growth, but some also aim to generate income.

Joseph Hill - Investment Analyst
10 September 2021

The US stock market is home to some of the world's most well-known companies. Many of these are found within the Tech sector and include household names such as Facebook, Amazon, Google parent company Alphabet and Apple.

But technology isn’t the only game in town. The US is home to world-leading companies in almost every industry there is, from media and film, through to manufacturing and transportation.

Because of this variety, investing in the US could be a good way to diversify an investment portfolio. Investors should be mindful that US funds can come in different guises. Many funds investing in the US prioritise growth, rather than income. Some focus on the largest companies in the market, usually those within the S&P 500 Index. Others look for opportunities amongst small and medium-sized companies, which may offer greater growth potential, but are higher risk.

Our View

The US is home to many large world-leading businesses that dominate their industries, and as a result it accounts for over half of the global stock market. It’s also home to some excellent smaller businesses, some of which are among the most innovative around and offer lots of growth potential, although they're higher risk than their larger counterparts.

We think most diversified portfolios should have some exposure to the US market. But it's one of the most heavily researched in the world so share prices are often quick to react to new information. We think this can make it more difficult for fund managers to find opportunities missed by others and to consistently perform better than the broader market over the long term.

However we think there are some experienced managers that are well equipped to do so and we continue to look for other managers investing in the US that we think have the potential to perform well over the long term.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Wealth Shortlist funds in this sector

Funds chosen by our analysts for their long-term performance potential.

See the Wealth shortlist

Many businesses have benefited from the digital transformation that’s taken place across the economy. Of course during 2020, companies in the technology sector helped people to work from home and kept them entertained during lockdowns. But businesses outside of the technology sector have had to adapt so they can interact with consumers in different ways too. Over the last 12 months the sector's march upwards has been surpassed though by the likes of industrials, oil & gas and financials which have delivered higher returns.

Chart showing FTSE USA annual performance

Scroll across to see the full chart.

Past performance isn't a guide to the future. Source Lipper IM to 31/08/2021.

All of the sectors of the US market shown above delivered positive returns over the 12 months to 31 August 2021. The financials sector grew faster than the other major sectors of the US economy over the period at 38.0%. The end of the election uncertainty after Biden’s win and the positive news around vaccines in the latter months of 2020 supported a brighter outlook for sectors with their fortunes closely tied to those of the economy. These are referred to as ‘cyclical’ sectors. Cyclical sectors, like Industrials, which gained 32.6%, and financials, received a boost in this final quarter of 2020 and into 2021 after previously being out of favour.

With household consumption accounting for around 70% of the US economy, US consumer spending will be key to the continuing economic recovery. Rising inflation is a topic that’s grabbed the headlines across the pond. It reached 5.4% in the year to July. Clearly this is higher than the 2% average inflation target set by the US Federal Reserve (Fed). But this objective means it will likely tolerate some periods of higher inflation, if it’s been preceded by a period of low inflation. Top officials at the Fed, including Chair Jerome Powell, have also been clear that they believe the increase will prove to be short lived.

Over the longer term the US market has delivered strong returns to patient investors and we're excited about the long-term opportunities that lie ahead in the world's largest stock market. That said, there will always be short term issues that capture the attention of investors so there's likely to be volatility along the way.

Scroll across to see the full table.

Aug 16 – Aug 17 Aug 17 – Aug 18 Aug 18 – Aug 19 Aug 19 – Aug 20 Aug 20 – Aug 21
FTSE USA 18.4% 18.6% 9.7% 12.6% 27.7%
FTSE USA/Financials 24.1% 16.4% 10.6% -9.9% 38.0%
FTSE USA/ Industrials 20.2% 15.5% 12.6% 2.2% 32.6%
FTSE USA/ Technology 33.2% 31.3% 10.6% 47.7% 31.8%
FTSE USA/ Consumer Goods 9.1% -0.5% 15.4% 16.6% 20.0%
FTSE USA/ Oil & Gas -4.7% 21.9% -15.4% -38.9% 37.9%
FTSE USA/ Health care 16.6% 16.1% 5.4% 12.1% 23.6%

Past performance isn't a guide to the future. Source Lipper IM to 31/08/2021.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Our Wealth Shortlist features a number of funds from this sector, selected by our analysts for their long-term performance potential. The Shortlist is designed to help investors build and maintain diversified portfolios. To use the Shortlist to build your portfolio, you should be comfortable deciding if a fund fits your investment goals and attitude to risk. For investors who don't feel comfortable building and maintaining their own portfolio we offer ready-made solutions, which are aligned to broad investment objectives. For those who want extra help, you can also ask us for financial advice.

The fund reviews below are provided for your interest but are not a guide to how you should invest. For more information, please refer to the Key Investor Information for the specific fund. Remember all investments can fall as well as rise in value so you could get back less than you invest. Past performance is not a guide to the future.

There is a tiered charge to hold funds on the HL platform. It is a maximum of 0.45% a year - view our charges. Comments are correct as at 31 August 2021.

Wealth Shortlist fund reviews

The team of four co-managers aim to grow an investment by investing in businesses with exceptional growth potential and holding them for long enough to reap the rewards. We like the managers' long-term, disciplined investment process and think they are well equipped to succeed in navigating the world's largest stock market. The managers believe few companies are capable of delivering exceptional returns over the long run, so they run a relatively concentrated fund of between 30 and 50 stocks, which can increase risk.

They believe that companies with resilient business models make for good long term investments and that corporate culture can be a key component of company performance and ultimately investor returns, although of course there are no guarantees. The managers have also identified a number of powerful trends they believe to be occurring across the economy. Many of the businesses driving these trends are highly innovative and disrupt old ways of doing things.

The fund performed very well in 2020, encompassing the coronavirus lockdowns where demand for online services exploded, benefiting some of the fund's investments. Past performance isn't a guide to the future. Our analysis shows the fund currently has around 4% in smaller companies, which are higher-risk.

The fund's manager Lauren Romeo looks to deliver long term growth by investing in small and medium-sized businesses with growth potential that's been overlooked by other investors. These can often be companies that don't attract as much attention from analysts or investors, meaning there could be opportunity to uncover hidden gems, although investing in smaller companies is a higher risk approach.

We like the team's disciplined investing approach and think Lauren Romeo is supported by a capable, experienced team, having managed the fund herself since 2011.

The fund's delivered positive returns in recent years but hasn't managed to keep pace with the broader market of small and medium–sized US companies. Romeo's value investing style hasn't been in favour with the market for much of this time. But we think it's important to have a range of investment styles in an investment portfolio and the manager's strategy and focus on valuation could add diversification. We continue to believe that the fund harnesses the skill of a talented team with a sensible investment approach. We still think the fund has the potential to perform well and provide good returns for investors over the long term, although there are no guarantees.

This fund aims to track the performance of the FTSE USA Index. It invests in 606 mostly large American companies.

This fund invests in most companies in the FTSE USA Index in proportion to each company's size. The larger the company, the larger its impact on the index. Smaller businesses that make up a very small part of the index are sometimes not held in the fund as they can be more difficult or expensive to buy and sell. This helps to keep costs lower.

The fund's tracked the index tightly and efficiently over both the short and longer term, losing little value to annual charges. We think it's a great option for low-cost exposure to the US stock market.

The fund aims to deliver long-term growth by investing in smaller companies based in the US. We think this is a great way to invest in smaller companies with high growth potential in one of the world's most innovative markets, although investing in smaller companies is a higher risk approach.

We like Cormac Weldon's clear, disciplined investment approach, which has served the fund well since its launch. He has almost 20 years' experience of investing in the US and is supported by a strong team of analysts. Weldon runs a relatively concentrated fund investing in 40-60 companies out of the thousands that make up the benchmark, which can increase risk.

Since joining Artemis to launch the fund in October 2014, Weldon has delivered attractive returns for investors. Our analysis suggests Weldon's stock picking has added value for the fund, particularly in the consumer discretionary sector. Please remember past performance isn't a guide to future returns.

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Legg Mason IF Royce US Smaller Companies: October 2020 fund update

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Baillie Gifford American – October 2020 fund update

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Investment notes

Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.

Fund research

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