A number of managers have been reducing exposure to the US, although in some sectors it remains the market of choice. Brenda Reed, manager of the Fidelity Global Focus fund, says around the time of the Lehman crisis the fund was very underweight the US, particularly financials and consumer stocks.
"That changed a lot between March and June last year. I bought a lot of technology and industrial stocks. The market was saying there's never going to be any revenue growth and was underestimating the effects of cost cutting. I was around 1,000 basis points overweight at my peak, and that worked incredibly well." The fund today, however, is significantly underweight.
"I want to look at where the world is going to be six months from now," said Reed.
"The US has been thinking about the fiscal stimulus beginning to fade away. The tax increases won't help consumer spending. You're left with a low growth economy. Stocks have done really well, but there are more interesting stories elsewhere. The balancing issue is always how much growth can I buy and what valuation can I buy it at ?."
Over the last decade, Reed notes that the US has formed a smaller portion of indices like the MSCI World, and she fully expects this to continue. One specific sector she remains keen on, though, is technology.
"You can find some fantastic balance sheets and great free cash flow. Some of my big positions include Cisco Systems and Citrix Systems, which has done really well on earnings last quarter and is not cheap, but is one of the true beneficiaries of cloud computing [the storage of data across multiple locations]."
Trustnet Alpha Manager Greg Aldridge, who runs the M&G Global Growth fund, looks at things from a bottom-up, company perspective but at the same time is aware of his regional allocation.
Performance of funds vs sector over 2-yrs
Source: Financial Express Analytics
"I’ve been underweight the US since I've run the fund. It's a huge chunk of the world market but I'm looking all round the world for ideas. Nothing has changed from that perspective. I'm very happy to have big tilts away from the index."
Both the M&G and Fidelity funds are well ahead of the IMA Global Growth sector average over three years.
Recently Aldridge has increased US exposure via a position in United Technology, whose operations include lifts, air conditioning systems, aircraft engines and helicopters.
"It's got a strong market position, recurring revenues and lots of potential for growth. It just happens to be in the US." At the same time, he sold healthcare firm Merck, replacing it with Swiss company Roche.
"Interestingly, one of Roche's big markets is the US. It's much more complicated than whether you increase or decrease your weighting [to the US]."
Aldridge has also held positions in the healthcare and pharmaceutical sectors in the US, with stocks such as Johnson & Johnson and Amgen, and consumer goods, partly driven by the fact there are some top quality businesses there.