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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
31 December 2019

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 names such as Facebook, Amazon 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 come in different guises. Many funds investing in the US aim to grow the value of your original investment, rather than pay a high level of 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 businesses that dominate their industries, and as a result it accounts for over half of the global stock market.

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. This makes it more difficult for active fund managers to gain an edge or find opportunities that might be overlooked by other investors. We think a low-cost, passively managed fund could therefore be considered for exposure to larger US companies.

We continue to look for fund managers investing in the US with the potential to perform well over the long term. We think there are more opportunities for active managers to add value among higher-risk smaller and medium-sized US companies.

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.

The US stock market has had a strong year, recovering well from its rocky end to 2018 to bank some good returns for investors. In fact it’s on course to deliver its second largest annual gain since the turn of the century. As you can see in the graph below, a key driver of returns over the last five years has been the Technology sector, which has grown faster than any other over the period. Remember though that past performance is not a guide to the future and nothing is guaranteed.

5 year returns

Past performance is not a guide to the future. Source: Lipper IM to 30/11/19

When we analyse stock markets we compare company earnings and profits with share prices. This is with the aim of assessing if on aggregate, rising share prices are justified by growing earnings and profits or if factors like short term volatility or sentiment could be having an effect. Ultimately, over the long term, we believe earnings and profit growth are needed to support higher share prices. And in recent years this is something we’ve seen in the US, with earnings and valuations growing at a similar rate.

2019 has also seen three interest rate cuts from the US Federal Reserve, which has been seen as a good thing for stock markets, and companies have taken full advantage with corporate debt levels reaching record highs. But this shouldn’t be relied upon as a regular occurrence that will continue into 2020. The Fed have made it clear they have no further rate cuts planned should economic data continue to reflect their expectations.

The fantastic run of the last decade suggests that we could be nearing the end of the stock market cycle for US equities. We therefore think investors should tread carefully as the market looks on the expensive side. And although this doesn’t mean the market can’t keep rising, returns could be more muted and there’s no guarantee recent strong performance will be repeated. All investments fall and rise in value, meaning you could get back less than you invest. Over the long term, we think the stock market is an excellent home for investments. For some investors this could include some exposure to the shares of US companies.

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.

Five year performance

  • FTSE North America

    +99.27%

  • FTSE USA/Technology

    +174.07%

Data correct as at 30/11/19. Please remember past performance is not a guide to future returns.

Fund reviews

We regularly review all the major investment sectors. Here we provide comments on a selection of US funds. They're provided for your interest but not a guide to how you should invest. If you are unsure if an investment is right for your circumstances please seek personal advice. Comments are correct as at December 2019.

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.

To view a full list of our favourite funds within the sector, visit the Wealth 50. There is a tiered charge to hold funds with HL. It is a maximum of 0.45% a year - view our charges.

Our favourite funds in the sector

Other Funds in the sector

The managers of the fund look to invest in companies with high growth potential that could be capable of delivering exceptional returns over the long run.

They believe companies with resilient business models make for good long term investments and that cultural drivers can be a key component of company performance and ultimately investor returns. They find businesses with strong competitive positions in their industry attractive and aim to hold them for the long run.

The fund has performed well over the last five years and has delivered a return greater than that of the broader US market. Over this period Amazon and MarketAxess have been among the fund's best performers accounting for just over a third of the fund’s performance. The managers tend to invest in a relatively small number of companies which increases risk.

Cormac Weldon tries to invest in smaller companies whose potential has not yet been recognised by others. Smaller companies are higher-risk than their larger counterparts.

The fund’s largest sector exposures are Industrials and Financials which together represent over 44% of the fund’s total value. Weldon purchased Bio Rad, the supplier of niche products and services to the life sciences, diagnostic and biopharmaceutical industries for the fund earlier this year. He thinks these industries should grow in the future and the company has added to the fund’s performance so far. The fund can also use derivatives which can add risk.

The fund has performed well over the last few years delivering a return ahead of its benchmark. The fund does not currently feature on the Wealth 50 list of our favourite funds.

Bob Kaynor looks to invest in companies he believes can deliver strong growth. This includes some businesses the manager believes are out of favour with the market but who’s fortunes he thinks should improve and some will be invested in “steady Eddie” companies.

These companies sell products and services their consumers need regardless of economic conditions, but their future growth potential might be lower than others.

Kaynor has invested over half of the fund in across the Financials, Consumers discretionary and Technology sectors and recently added Envista, the dental product manufacturer, to the fund. The fund invests in smaller companies, which are higher-risk than their larger counterparts.

The fund’s performed strongly over the last year, delivering a return ahead of its benchmark. It’s investment in Financials and Technology companies have been helpful for performance. The fund can also use derivatives which can add risk. It is worth noting that Kaynor took over management of the fund from long-term portfolio manager Jenny Jones at the beginning of 2019.

The fund’s manager Lauren Romeo looks for small and medium-sized businesses with growth potential 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 investing style hasn’t been in favour with the market for much of this time with lower quality businesses benefitting more from the low interest rate environment. We still think the fund has the potential to perform well and provide good returns for investors over the long term.

This fund aims to track the performance of the FTSE USA Index. It invests in more than 600, mostly large, American companies.

This fund invests in every company 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.

Latest research updates

Baillie Gifford American – Focused on growth potential

Baillie Gifford American – Focused on growth potential

Tue 03 December 2019

We recently spoke to Tom Slater, the fund’s co-manager to find out about where they’re finding opportunities and what’s impacted recent performance.

Legg Mason Royce US Smaller Companies - small fish across the big pond

Legg Mason Royce US Smaller Companies - small fish across the big pond

Wed 15 May 2019

Lauren Romeo invests in North American smaller companies that could have exciting growth potential. Market conditions have been more volatile in the last 12 months which we think suits Romeo’s investment style.

Schroder US Smaller Companies & Schroder US Mid Cap Funds - Jenny Jones has retired

Schroder US Smaller Companies & Schroder US Mid Cap Funds - Jenny Jones has retired

Thu 04 April 2019

Jenny Jones has retired as manager of the Schroder US Smaller Companies and US Mid Cap funds. Robert Kaynor replaces her as lead manager of both.

Neptune US Opportunities - change of manager

Neptune US Opportunities - change of manager

Fri 20 July 2018

Robert Milway has left Neptune Investment Management and handed responsibility for the Neptune US Opportunities Fund to Ali Unwin. Patrick Close remains the fund’s co-manager.

Legg Mason IF Royce US Smaller Companies - we retain faith in the team

Legg Mason IF Royce US Smaller Companies - we retain faith in the team

Tue 16 January 2018

The Legg Mason IF Royce US Smaller Companies Fund has underperformed the broader US stock market in recent years. We look at the reasons behind this underperformance and share our views on the fund's prospects.

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.

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