The only two funds to invest in North America with no stress

There have not been many places to hide in US equities, as just two IA North America funds have managed to combine meaningful downside protection with strong risk-adjusted returns over the past five years, Trustnet research has revealed.

Most funds in the IA North America sector have either captured a large proportion of market falls or failed to convert resilience into attractive risk-adjusted returns.

Only two strategies met the same criteria used in previous instalments of this series: a top-decile Sortino ratio and top-decile downside capture over five years measured against the S&P 500 index, with above sector-average performance.

These were the active FTF ClearBridge US Equity Income and the passive Invesco S&P 500 QVM UCITS exchange-traded fund (ETF).

This result underlines how difficult it has been to outperform in a market dominated by a small group of mega-cap stocks, while also protecting when these companies falter.

Source: FinXL

The ClearBridge fund delivered the strongest downside protection in the sector, with a five-year downside capture of 55.5%. In practice, that means it fell roughly half as much as the market during down periods.

Its Sortino ratio of 0.99 placed it in the top decile of the sector for downside risk-adjusted returns. While impressive, returns have been more mixed on a calendar-year basis, with the fund sitting in the peer group’s first quartile in 2022 and second quartile in 2021, when higher interest rates impacted the giant tech stocks.

However, it dipped to the third and fourth quartile in 2024 and 2023 respectively as the artificial intelligence (AI) phenomenon drove the Magnificent Seven higher.

The £149.7m fund’s sector positioning shows a tilt away from the mega-cap technology dominance that has characterised the US market in recent years.

Telecom, media and technology accounts for 24.9% of the portfolio, far below the 33.4% weighting in the S&P 500. Its income mandate (the fund yields 1.81%), means the managers hunt elsewhere, with basic materials (16.2%) and financials (14.5%) featuring more prominently than their index weightings.

On the passive side, the Invesco ETF combines index tracking with factor tilts towards quality, value and momentum.

It posted a downside capture ratio of 58.6% and a Sortino ratio of 0.97, again placing it in the sector’s top decile on both measures. Like the ClearBridge strategy, it proved particularly resilient in 2022, ranking in the first quartile, but slipped to the fourth quartile in 2023 when growth stocks rebounded.

Its five-year return of 102.1% shows that lower downside participation has not prevented it from compounding capital over time.

Although it tracks the S&P 500, the ETF’s multi-factor strategy results in a different sector profile from the index. Financials make up 28.9% of the portfolio, while telecom, media and technology accounts for 22%.

Near misses

Two additional IA North America funds combined strong risk-adjusted returns with more moderate downside protection but did not make the top decile for downside capture.

CT North American Equity delivered the highest Sortino ratio in the broader group at 1.24, alongside a downside capture of 74.3%. It has been a consistent first- or second-quartile performer in four of the past five years and has more than doubled investors’ money over five years, returning 104.3%.

BlackRock US Dynamic, meanwhile, combined a 0.95 Sortino ratio with a downside capture of 81.7%. It ranked in the first quartile in 2025 and has returned 106.2% over five years, although its higher beta of 1.49 reflects a more aggressive profile.

Source: FinXL

In smaller companies, no IA North American Smaller Companies fund met all the criteria. CT US Smaller Companies came closest, with a ninth-decile downside capture of 84.3% and a top-decile Sortino ratio of 0.51, but its higher volatility profile kept it outside the final shortlist.