August came to a close with the S&P 500 at 2,003.37, meaning the index has gained 9.14 per cent year-to-date.
The month’s gains came despite geo-political tensions in Ukraine, as investor sentiment was buoyed by a surprise rise in US consumer confidence and the biggest ever increase in durable goods orders.
Investors in the US have often found it hard to beat the S&P 500 for a number of reasons, including its thorough coverage by financial analysts, the potential for ETFs to distort the market and a strong polarisation between growth and value styles.
In an analysis of the IMA North America sector last year, Premier Asset Management’s Simon Evan-Cook pointed out that the average fund underperformed the market by 15. 7 percentage points over the previous five years.
The manager of the £372m Premier Multi Asset Distribution fund said: “This sector represents a serious test of faith. We are firm believers that active management can, and does, work for savvy investors, but we find precious little to back that belief in this part of the world.”
With that in mind, we look at the FE-rated IMA North America funds that have managed to beat their S&P 500 benchmark by the widest margin in 2014 so far.
Fidelity American Special Situations
Angel Agudo’s £369m Fidelity American Special Situations fund returned 11.83 per cent over the first eight months of 2014. In contrast the average fund in the IMA North America sector has underperformed the S&P 500 with a gain of just 7.33 per cent.
Fidelity American Special Situations, which holds an FE Crown rating of three, sits in the sector’s first quartile over one, three and five years.
It is the sector’s fourth strongest fund over three years, with a return of 86.60 per cent.
Performance of fund and benchmark over 2014 to date
Source: FE Analytics
Agudo was appointed to the fund in December 2012 and since then it has outpaced the benchmark by more than 15 percentage points with a return of 45.94 per cent, according to FE Analytics.
Fidelity American Special Situations, which has ongoing charges of 1.70 per cent, seeks to invest in undervalued companies. Its top-10 holdings include Verizon Communications, URS Corp and Cisco Systems.
M&G North American Value
The £368.6m M&G North American Value fund, which is managed by Daniel White with Richard Halle as deputy, is up 11.29 per cent over 2014.This makes it the seventh best fund in the 114-strong sector over this time.
White has only helmed the fund since September 2013 after its management was taken from Chicago-based fund group PPM America and moved in-house.
White has past experience in value investing after working on the M&G European Strategic Value fund since its launch in 2008 but this is his first US equity mandate.
Performance of fund and benchmark over 2014 to date
Source: FE Analytics
The manager’s process aims to identify stocks in the cheapest quartile of each sector in the fund’s investment universe, which are then analysed further to avoid investing in any ‘value traps’.
As this process aims to find groups of favourable stocks rather than individual companies, the manager has lifted the three FE Crown-rated portfolio’s total holdings from 52 to 78 since taking over.
M&G North American Value’s largest holding is Microsoft, at 3.2 per cent, followed by Google, Chevron, JP Morgan and AT&T.
It has an ongoing charges figure (OCF) of 0.94 per cent.
GAM Star US All Cap Equity
The £600m GAM Star US All Cap Equity fund, managed by New York-based asset management house Manning and Napier Advisors, has gained 10.78 per cent over 2014 to date.
However, it sits in the sector’s third quartile for 2013, 2012 and 2010 and its fourth quartile for 2011.
Performance of fund and benchmark over 2014 to date
Source: FE Analytics
GAM Star US All Cap Equity launched slightly over seven years ago. Over that time, it has made returns broadly in line with the S&P 500, rising 74.86 per cent against the index’s 76.96 per cent.
Its management team has a very risk-aware approach and invests into three strategies, encompassing growth, cyclical and deep value stocks.
According to FE Analytics, the two crown-rated fund has a lower maximum drawdown and volatility than the S&P 500 over seven years.The fund is benchmarked against the S&P 500 but invests in US equities across the market cap spectrum.
Its top-10 holdings include healthcare information technology firm Cerner, agrochemical and agricultural biotechnology corporation Monsanto and IT storage firm EMC Massachusetts.
GAM Star US All Cap Equity has an OCF of 1.64 per cent.
Despite the S&P 500 breaking a new record high, analysts warn that valuations appear stretched and significant progress over the rest of the year seems unlikely – especially as the Federal Reserve is tightening its policy.
Capital Economics said: “Although the S&P 500 has broken above 2,000 for the first time, we doubt that the stock market will go from strength to strength. For now, we are sticking with our forecast that the index will end next year roughly where it is now.”
“The valuation of the S&P 500 is now more stretched than it was when the Fed first raised rates in six of the last seven major tightening cycles. The exception was in 1999/2000, when tighter policy was soon followed by the bursting of the dot com bubble.”
“Granted, the valuation of the stock market is nowhere near as high as it was then. But it is hard to make the case that equities are attractively valued today in their own right.”
