Report: AIC North America

Within this sector, the only fund that outperformed the MSCI North America index is the JP Morgan American Investment Trust, which generated a 3 year return of 15.2% compared to the MSCI index’s 12.8% to August 2008 according to Financial Express Analytics. Average annual volatility in this sector stood at 26.6% a relatively high figure when compared to the MSCI’s 9.9%, this risk factor ranged from 12.57% - 158.18%. Volatility for the JP Morgan fund stood at the lower end at 12.82% making it the best performing trust in this sector. The trust holds a flexible investment mandate, investing primarily in more stable large cap companies but also reallocating to small caps when appropriate, moreover it is the only trust that also invests in money markets to achieve better diversification.

Traditionally, North America is one of the most stable areas to invest in, however events over the last year has resulted in much instability. As the bad debts from sub-prime backed investments became exposed major banks suffered huge losses to their balance sheets. Their losses were so ambiguous, to the point where banks were weary of lending to each other thus pushing up inter-bank rates, decreasing the availability of cheap credit in the North America markets and ultimately resulting in the ensuing credit crisis. Coupled to the inflationary pressures caused by rising commodity prices has resulted in more volatile conditions for the North American markets.

Outlook

Nonetheless, investors should sleep better in recent weeks as there seems to have been a turnaround in these markets as commodity prices in general and more importantly oil prices experience sharp declines, easing inflationary pressures. Moreover, the dollar has strengthened significantly against sterling and the euro suggesting improved market sentiments towards the North American Economy.

Data from Financial Express Analytics also suggests that there has been a turnaround in the North American markets, with the MSCI North America Index showing a 5.89% return and the JP Morgan trust posting returns as high as 15.91% over the past month.

Investors in this sector should benefit by remaining cautious and not buy into the market just yet, as it is uncertain whether this turnaround is sustainable. Economic fundamentals indicate that it is not, US banks are still continuing to tighten their lending standards, US inflation and unemployment is still on the rise and property prices are still falling. Furthermore, part of the reason that the dollar has strengthened is because the outlook for the UK and Europe have worsened, weakening the euro and sterling against the dollar. Hence, fears of a US recession still lingers and may come back to spook the North American markets into a sharp fall at anytime.

*Source of data: Financial Express Analytics