Despite concerns over the longevity and sustainability of the US bull run, the S&P 500 has continued to grow in the post-financial crisis period, shrugging off many market challenges over the past decade.
Juliet Schooling Latter, research director at FundCalibre, said while the returns have been lower and the pace slower than the average bull run, it has been longer than the 8.9 years an average cycle has lasted.
Bearing in mind that ‘market cycles don’t die of old age’, Schooling Latter said that – trade wars aside – there are few significant challenges to US economic expansion.
Performance of S&P 500 since March 2009
Source: FE Analytics
“Momentum is definitely slowing in the US, and company earnings may have peaked, but the labour market is still strong and we are entering the presidential campaign season, so Donald Trump will be keen for the economy and stock market to keep going a while longer,” she added.
Nevertheless, Schooling Latter said there are four things investors should keep in mind when making an allocation to the US: a supportive Fed, trade wars, valuations and variety.
She added that the US central bank has been steadily raising rates over the past three years but has now signalled that it is ready to cut from 2.5 per cent to boost the economy if the outlook deteriorates.
“This is supportive of US equities and should lengthen the economic cycle,” the research director said.
Although trade-war talk has flared up again this year, tensions appear to have simmered after the G20 meeting in Japan.
“President Trump seems to have been using his usual tactic of promising the worst to then reach a ‘compromise’ – or get what he wanted in the first place,” Schooling Latter continued.
While valuations had been looking attractive at the start of the year following the Q4 2018 sell-off, US stocks are starting to look expensive once more following this year’s rally.
Finally, Schooling Latter said there is plenty of choice for investors across the market capitalisation scale, while income seekers will be buoyed by the higher yields on offer.
Below, she highlights four US equity funds that investors may want to take a closer look at.
AXA Framlington American Growth
First on the list is AXA Framlington American Growth, which manager Stephen Kelly has overseen since 1997.
“The manager invests mainly in large- and mega-cap companies, exhibiting genuine organic growth and with competitive advantages such as unique brands and intellectual property that have helped them become, and remain, market leaders,” said Schooling Latter.
The top-10 names include Microsoft, Amazon.com, Google-parent Alphabet, Apple, Facebook and Visa.
Performance of fund vs sector & benchmark under manager
Source: FE Analytics
Under Kelly, the fund has made a total return of 425.78 per cent, slightly underperforming the Russell 1000 Growth index’s 471.52 per cent gain. Over the same period the average IA North America fund has made a total return of 289.65 per cent. AXA Framlington American Growth has an ongoing charges figure (OCF) of 0.82 per cent.
Hermes US SMID Equity
Next up is Mark Sherlock’s $877.5m Hermes US SMID Equity fund, which is focused on small and mid caps.
“Sherlock invests in quality businesses with minimum debt, in industries with barriers to entry, or that provide products or services that cannot easily be replicated,” said Schooling Latter. “He wants to see the potential for at least a 20 per cent increase in the company's share price.”
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
Since the launch of the fund in September 2012, it has made a total return of 181.30 per cent, ahead of the 173.91 per cent gain for the average IA North American Smaller Companies fund and 171.25 per cent for its Russell 2500 benchmark. It has an OCF of 0.83 per cent.
Schroder US Mid Cap
Another fund focused on companies lower down the market cap scale is Schroder US Mid Cap, managed by New York-based Robert Kaynor.
He joined the mid-cap strategy as a co-manager in January 2018, taking over as sole manager after veteran US investor Jenny Jones announced her retirement earlier this year.
“Kaynor and his team have three sources of stock returns: less cyclically sensitive stocks which act as ballast in the portfolio, mis-priced growth stocks and recovery type situations,” said Schooling Latter.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years, the fund has made a total return of 41.6 per cent compared with a 52.93 per cent gain for its average IA North America peer and a 46.94 per cent return for the Russell 2500 index. It has an OCF of 0.91 per cent.
Lazard US Equity Concentrated
Last on the list is the $336.5m Lazard US Equity Concentrated fund, overseen by Christopher Blake and Martin Flood.
“This extremely concentrated US fund typically holds no more than 20 to 25 companies, ranging in size from the fairly small all the way through to the very large,” said Schooling Latter. “Stocks fall into one of three buckets: compounders (the largest section), mis-priced or tactical opportunities.”
The fund’s managers believe that a concentrated portfolio can be as diversified as one with a greater number of holdings
“By holding a relatively small number of well-chosen stocks, we believe investors can achieve similar if not better risk-adjusted results than portfolios with more holdings, as our investments reflect our highest conviction ideas,” they noted.
Performance of the fund vs sector & benchmark since launch
Source: FE Analytics
Since launch in March 2016, the fund has made a total return of 58.11 per cent compared with a gain of 76.89 per cent for its S&P 500 benchmark and a 73.71 per cent return for its average peer. The fund has an OCF of 0.87 per cent.