North American funds largely invest in the US, although some also have holdings in Canada. Both economies are members of the North American Free Trade Agreement [NAFTA], but different currencies and cultures make them different animals from the point of view of the investor.
The USA remains the largest economy in the world and is widely believed to be the driver of global growth. Recently its relationship with China has been considered vital, with the latter country providing cheap labour and goods for America.
However, many experts remain confident that the country’s powers of self-regeneration will be enough for it to power ahead under its own steam, with cheap gas from fracking techniques giving a huge boost to the domestic economy. Why invest in the US?
The US is the most dynamic and powerful economy in the world and home to most of the cutting-edge businesses that are revolutionising the world through the internet economy.
Many experts say that the US should be an essential part of any portfolio and point out that the leading US companies are global multinationals, meaning that North American funds offer a good way to capture global growth.
The majority of commentators think that the country will be the first to recover from the financial crisis – if the recovery hasn’t already started – meaning that it could be one way to capture the earliest gains. What are the risks?
The US is not without its problems. It has a huge public debt that its highly divided politics have made it difficult to bring down.
Although economic growth is expected to be higher in the future than that of Europe and the UK, it is still likely to be lower than that in emerging market economies, meaning that investors with smaller amounts to invest might think it wiser to save their ex-UK exposure for the developing world.
Many people think that active funds in the country offer no value for money and the best way to get access to the market is through a passive index tracker.
This is because many of the active funds have struggled to make gains higher than those of the S&P 500 stock market, and passive funds guarantee investors a return similar to that of the index.