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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.

Richard Wood - Investment Analyst
20 June 2019

The US stock market is well-known for some of the world's biggest tech names. Facebook, Amazon and Apple to name a few. But technology isn’t the only game in town. The US is home to world-leading companies in almost every industry, from media and film through to manufacturing and transportation.

Investing in the US could be a good way to diversify a portfolio. Many funds investing in the US aim to grow 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 global businesses that dominate their field. It accounts for over half 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. Share prices are often quick to react to new information. This makes it difficult for active fund managers to gain an edge or find opportunities overlooked by other investors.

For exposure to larger US companies we think a low-cost, passively managed fund could be considered. 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 has been the best-performing major stock market over the past five years for UK based investors. The technology sector has driven returns. A lot of this is down to just six companies – Facebook, Amazon, Apple, Netflix and Google, widely known as the 'FAANGs', as well as Microsoft. The oil & gas sector was the worst-performing over the same time.

5 year returns

Past performance is not a guide to the future. Source: Lipper IM to 31/05/19

The US stock market has performed well over the past year too. But it hasn't been a smooth ride. Like most global markets, the US fell towards the end of 2018. But investors sighed some relief after the US Federal Reserve suggested it would raise interest rates slower than previously expected, which is seen as a good thing for stock markets. It's helped markets rise again so far in 2019.

When we analyse stock markets we compare company profits with share prices. We’ve been saying the US market looks expensive for a while now, though US company earnings have continued to grow. This could support higher share prices but they'll need to be justified by further profit growth.

We still think investors should tread carefully. Some of last year’s profit growth came as a result of tax cuts. Tax cuts can encourage investment in business, which is good for the economy. They also cause an immediate, one-off jump in profits. There’s nothing wrong with this but it means the same level of growth will be harder to achieve the following year. We have to be careful not to assume profit growth seen in 2018 can be repeated year after year.

This is not to say the US should be avoided, or that returns will be poor. We think the stock market is an excellent home for long-term investments. For many investors this could include some exposure to the shares of US companies. We don’t feel there's currently a compelling case to significantly increase investments here though.

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 USA Index

    +109.8%

  • IA North America

    +96.0%

Data correct as at 31/05/19. 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 June 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 this fund look for high quality companies with good management culture and a competitive position in their industry. They then hold them for the long term.

The managers have done better than the broader US stock market since taking over the fund in April 2014. We put this down to their ability to select companies with bright futures ahead of them. The managers prefer companies they think have exciting growth potential and these have been the strongest contributors to performance.

But over the last year the fund’s return has been slightly behind the US market. Investments in Grubhub and Tesla held back returns. The managers tend to invest in a relatively small number of companies which increases risk. We'd prefer to see how they get on over the long term before considering the fund for the Wealth 50.

Curt Organt invests in higher-risk small and medium-sized companies. It’s a balanced fund that combines companies with exciting growth potential with those that are out of favour but the manager thinks are attractively priced.

Curt Organt has only been in charge of the fund since the end of March 2019. He doesn’t currently have a long enough track record for us to consider the fund for the Wealth 50.

The manager invests in a diverse range of stocks and sectors. He invests more in industrial, healthcare and technology companies than the broader market of smaller US companies. Technology investments performed well in recent months, helping the fund to beat its benchmark index over the last year.

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

The fund has performed better than its benchmark since launch in September 2014. Our analysis shows the manager has done a good job of picking the best performing shares within the sectors he invests in. It’s a skill we like to see.

The fund's also performed better than its benchmark over the past year. An investment in gym operator Planet Fitness made the biggest positive contribution to the fund’s return.

The manager’s track record before he joined Artemis is a little more subdued. He performed in line with the benchmark for a number of years. The fund does not currently feature on the Wealth 50 list of our favourite funds.

Aziz Hamzaogullari mostly invests in larger companies he thinks have exciting growth opportunities ahead of them.

The manager has a preference for companies he thinks can generate attractive profit growth. A third of the fund is invested in the technology sector so its performance is likely to be heavily influenced by the fortunes of companies in this sector.

The fund has performed well over the last year and Aziz Hamzaogullari has beaten the broader US stock market over the course of his career. But he’s performed roughly in line with the market over the past decade.

The manager looks for small and medium-sized businesses with growth potential overlooked by other investors. Smaller companies are higher-risk than bigger businesses.

The fund has delivered attractive long-term returns. But it’s performed less well than the broader market of small and medium–sized US companies in recent years. Lauren Romeo’s approach of investing in unloved companies has largely been out of favour. Investors have preferred companies with more dependable earnings streams or what they have considered more exciting growth prospects.

Romeo recently sold a holding in MSC Industrial Direct partly because she’s concerned about the impact new competitors, such as Amazon, could have on its profits. New investments include Monro, which provides vehicle repair and tyre sales and services.

We still think the fund can provide good returns over the long term. The manager’s contrarian approach means the fund offers something different from many of its peers.

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

Latest research updates

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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