Willis says charges always drag on portfolio performance and are a hurdle all investors have to overcome. He says there are certain areas of the market have a wealth of fund managers who have a proven record of outperformance – namely the UK small and UK equity income sectors – but says IMA North America is a difficult place to find quality managers. “The big advantage is they are cheap and allow investors to access exposure at a cost-efficient price. If you can get access to certain areas of the market in this way then as long as they can track effectively, they can be useful,” he said.
“The US market is an example of where it is hard to find a fund that can consistently beat the S&P 500. We are considering holding a tracker to gain returns but haven’t moved on it yet.”
Willis’ comments are backed up by the shortage of recognised star managers operating in the sector. There are 111 funds in IMA North America, and only three FE Alpha Managers. One of these is Schroders’ Jenny Jones, who invests predominantly in small and mid-cap portfolios.
By contrast, there are 93 funds in IMA UK Equity Income and 15 FE Alpha Managers, and 53 funds in IMA UK Smaller Companies boasting 14 FE Alpha Managers.
FE Alpha Managers identify the top 10 per cent of fund managers in the UK. They take into account performance in both rising and falling markets, as well as volatility and consistency.
Over 10 years, only 23 of the 62 North America funds with a long enough track record have beaten the S&P 500. Only eight have beaten the FTSE World USA index over the period.
FE data shows that the average US fund is behind the S&P over one, three and five year periods. By contrast, the average fund in IMA UK All Companies is ahead of the FTSE All Share over these time frames.
Performance of sectors and indices over 5yrs
Source: FE Analytics
Gordon Grender and Tana Focke are the only FE Alpha Managers who take the S&P 500 or FTSE World USA indices as their benchmarks. Both are highly established managers, with Grender running GAM North American Growth since 1985 and Focke running Smith & Williamson North American since 1997.
Both have very strong long-term track records, but have found it more difficult to outperform the market in recent years.
Performance of funds and index over 15yrs
Source: FE Analytics
For those interested in a US tracker, you could go for an ETF, or there are a handful of open-ended passives in the IMA North America sector, such as L&G US Index, Fidelity Index US and Vanguard US Equity Index.
Investec’s Max King, says he likes to use tracker funds when playing relatively short-term plays in his portfolio as they are so liquid.
“We use passives in our Multi-Asset Protector funds because they are easy to trade, low cost and very, very liquid,” he said.
“It means if we want to change asset allocation quickly we can leave the other assets undisturbed.”
However, given the volumes of money the average private investor trades, the issue of liquidity is unlikely to be a factor.
