An index tracker is among the handful of North American equity funds that have topped the performance tables over the past five years while delivering low volatility, data from FE Analytics shows.
Out of the 152 funds in the IA North America sector, just six funds achieved this feat of being top quartile for total return and annualised volatility.
The US stock market is one of the harder equity markets to outperform, given the depth and breadth of coverage from both sell-side and buy-side analysts alike.
Less than a quarter of funds in the IA North America sector with a five-year track record have managed to outperform the S&P 500 index and even less have done so whilst also minimising volatility.
The table below shows the six funds with top-quartile returns and first quartile (lower) annualised volatility.
The funds are ranked by their Sharpe ratio – which measures the return relative to its risk (the risk-free rate used was the weighted average Fed Funds rate over the past five years: 1.24%).
Source: FE Analytics
A notable outlier in the table was a passive exchange-traded-fund (ETF): BlackRock’s £5.7bn iShares MSCI USA SRI UCITS ETF, which tracks the MSCI USA Socially Responsible Investment (SRI) Index.
The SRI index is designed for investors who want exposure to companies with strong environmental, social and governance (ESG) ratings, while excluding companies whose products have negative social or environmental impacts.
Some of the specific exclusions are companies engaging with activities ranging from nuclear weapons and coal to alcohol and adult entertainment – to name a few.
Its biggest constituent is Microsoft, which makes up almost 5% of the total index. This is followed by electric vehicle manufacturer Tesla and semiconductor firm Nvidia.
Elsewhere, the £5.2bn AB American Growth Portfolio was the biggest active strategy that featured the table, with the highest overall return (172.2%) and Sharpe ratio (1.64).
Performance of fund versus benchmark & sector over 5yrs
Source: FE Analytics
The FE fundinfo five-crown rated fund is managed by Frank Caruso, John H. Fogarty and Vinay Thapar, who run a concentrated strategy with only 50 holdings. Its top-10 make up about half of the entire portfolio.
This concentration can also be seen in the fund’s heavy overweight positions in the big US technology firms compared to the broader indices.
It has more than double the index weighting to Alphabet (8.2% compared to 3.8% in the MSCI USA index), and it also has a large weighting to Amazon (6.3% compared to 3.8%) and Microsoft (8% compared to 5%).
The fund’s investment approach looks for companies that have compelling growth potential, an ability to persistently earn returns above their cost of capital and strong sustainable competitive advantages.
The £2.6bn Artemis US Select fund was another notable actively-managed strategy that featured in the table.
Managed by Cormac Weldon, the FE fundinfo three-crown rated fund holds between 50 and 70 companies, with some positions in smaller-sized companies.
It currently has roughly 80% of its portfolio in large-cap firms, 11% in mid-cap firms and less than 1% in small-caps.
The fund also has large overweight positions in US technology giants Alphabet (7.2%) and Amazon (6.7%), but it also has exposure to other up-and-coming technology stocks such as cybersecurity firm Crowdstrike and cryptocurrency exchange platform Coinbase.
Performance of fund versus benchmark & sector over 5yrs
Source: FE Analytics
The £276m Comgest Growth America fund run by Christophe Nagy, Joshua Veit and Justin Streeter was the smallest strategy in the table.
Despite the quality-growth fund having the highest concentration of the funds in the table with 34 holdings, it managed to deliver the lowest annualised volatility of those featured.
Like many of the other funds in the table, it has overweight positions in well-known technology giants Apple, Microsoft and Amazon.
Where it differs from the other funds is its large positions in Oracle - the database-focused software firm, and Intuit – which specialises in accounting and tax software.
Another fund that featured was the £545m Ninety One American Franchise fund run by Paul Vincent.
As the name suggests, the manager takes a quality approach to investing, but with a particular focus on companies with strong brands or franchises.
Like many of the funds in the table it has large overweight positions in Microsoft (7.6%) and Alphabet (6.6%). But its biggest overweights are its 4% position in software firm Adobe and 3.6% in network infrastructure firm Verisign.
The last fund that featured is the £844m Legg Mason ClearBridge US Equity Sustainability Leaders fund.
Similar to the BlackRock socially responsible index tracker, this actively-managed portfolio takes ESG factors into consideration when investing.
Run by Derek Deutsch and Mary Jane McQuillen, some of the fund’s biggest differentiated holdings include three large positions in the healthcare and medical devices industries.
It has a 2.5% weighting to UnitedHealth Group alongside a 2.3% position in CVS Health Corp and 2.3% in Danaher Corp.