Unlike its UK cousin, the US stock market has struggled in recent months as oil and commodities rallied in the wake of Russia’s attack on Ukraine while inflation and interest rates headed upwards.
The former factor has negatively impacted virtually all global markets but the latter has hit the US equity space more than others because of its ingrained biases.
The US’ main equity index, the S&P 500, is characterised as a predominantly growth market, with a high weighting to technology and internet stocks.
This make-up propelled the S&P 500 to years of outperformance versus other stock markets, making threefold the FTSE 100 in the past decade. Part of this outperformance was driven by the historically low interest rates, which benefit growth companies.
But since central banks have begun raising interest rates, these high flying names have struggled because this, along with inflation, generally act as a headwind to valuations based on future earnings.
As a result, the S&P 500 was down 1.2% in the past three months.
It is worth adding that the FTSE 100 was the only major index generating a positive return during that time frame.
Performance of major indices YTD
Source: FE Analytics
Throughout this rough ride though, fund managers have continued to seek out opportunities.
Having previously looked at the IA UK All Companies and IA Global sectors, Trustnet now turns its attention to the IA North American peer group to see what managers have been buying in the past three months.
Source: FE Analytics
Apple
First up is Apple, which started 2022 strong by becoming the first company to hit a $3trn (£2.2trn) valuation on the first day of trading.
The company is part of the FAANG cohort, hailed as one of ‘the’ technology darlings of not just the US but global markets.
But it has come off the boil slightly since the start of this year, mainly because of the aforementioned headwinds. The share price is down 2% year-to-date, but over five years it is remains positive, up nearly 400%.
Despite this, many managers remain bullish on the stock, including George Boyd-Bowman, manager of the Liontrust US Opportunities fund, which holds Apple as its second biggest holding.
Boyd-Bowman said that Apple was a “core holding” in the fund, arguing that it “has the world's most valuable technology platform”.
He said that one of the reasons why the stock had been so popular the past few months was that it was managing to avoid affiliation with the “faltering” of several of its FAANG peers.
“Both Facebook, now called Meta, and Netflix have notably tripped up,” he said.
“The market has been fixated in recent months on deciphering to what degree companies enjoyed a Covid-induced benefit and whether that demand has simply been ‘pulled forward’ or can be sustained. We put Apple firmly in the sustained category.”
Overall, analysts were generally bullish about the company’s upcoming year as well. Data collected by Tipranks – which aggregates broker recommendations – revealed that analysts expect the company’s share price to grow by an average of 6.4% in the next 12 months, making the stock a ‘strong buy’.
Berkshire Hathaway
Another popular buy among US fund managers was Warren Buffet’s Berkshire Hathaway.
The multifaceted conglomerate is an amalgamation of Buffet’s own investment approach, owning fairly-priced, high-dividend paying blue-chip companies which feature strong balance sheets with the intent to hold them for many years.
The company recently made a new purchase, Alleghany, an investment holding company that was founded by railroad developers and investors back in the late 1920s.
The strong legacy of Berkshire Hathawayis one reason it remains popular with investors, according to Rosanna Burcheri and Ashish Bhardwaj, who invest in Buffet’s business in their Fidelity American Special Situations fund.
They said that they personally liked the company “due to its high quality businesses” but also the “great operational catchup potential in many of its businesses” presented.
For example, they said: “Its utility business has been investing heavily in wind energy and its railroad business provides significant carbon reduction potential vs trucks, both of these are still not appreciated well by the market.”
They added that Berkshire Hathaway has “significant dry power on its balance sheet that can be deployed to create significant value in periods of market stress”, something which could become increasingly important now that markets were experiencing such high levels of volatility.
“We believe that the stock provides good value compared to the broad market,” the managers said.
Thermo Fisher Scientific
A third company that has been catching fund managers attention is Thermo Fisher Scientific.
The business provides scientific instrumentation along with various software services, many of which were in high demand during the pandemic.
Simon Doherty, the head of Quilter Cheviot’s managed portfolio service, said MI Quilter Cheviot North American Equity fund has been invested in Thermo Fisher Scientific since it launched last year, but prior to that it had been a core stock for Quilter Cheviot’s conviction US ideas since 2019.
“We like Thermo Fisher Scientific for its large and diversified portfolio encompassing markets with healthy dynamics, while the group continues to display an attractive organic growth profile,” he said.
Analysts were also positive on the stock, with Tipranks analysts rating it a ‘strong buy’. They have forecast a 11.8% rise in share price over the next 12 months.