Fidelity American, GAM North American Growth, Schroder US Smaller Companies and Smith & Williamson North American Equity have protected investors in down-market conditions, according to data from FE Analytics.
As investors continue to anticipate the end of the US equity bull run, FE Trustnet has looked for the funds that have a decent track record in down markets.
To find out which funds have protected investors in down market conditions, FE Trustnet considered a number of risk metrics spanning 20 years, capturing the bursting of the dotcom bubble in 2002, the global financial crisis and the ensuing equity bull market.
All the funds were measured against the S&P 500 index, a commonly-used benchmark for investors in US equities.
Three metrics were considered: the bear beta ratio (a measure of a fund’s sensitivity to negative changes in the benchmark); the downside capture ratio (which shows the fund’s performance in a down market); and downside risk (an estimate of a fund’s potential loss in negative market conditions).
From the two North America sectors, just four funds with a 20-year track record emerged with top quartile rankings for the above metrics: Fidelity American, GAM North American Growth, Schroder US Smaller Companies and Smith & Williamson North American Equity.
Source: FE Analytics
All four funds have outperformed the S&P 500’s 321.77 per cent return – in sterling terms – over the 20-year period stretching back to 31 October 1998.
Below FE Trustnet considers the four funds in greater detail.
Fidelity American
First on our list is the £901.8m Fidelity American fund, which launched in 1979 and has been overseen by a number of different managers during the past 20 years.
Fidelity American has been managed by Sujay Kodlikeri since last year – the eighth manager since 1998 – who took over from Aditya Khowala.
The fund targets long-term capital growth and is likely to have a bias towards large- and medium-sized companies.
Its largest holdings include healthcare company Aetna (6.5 per cent), Warren Buffett’s investment vehicle Berkshire Hathaway (5.3 per cent), IT companies CA and Oracle (5 per cent and 2.5 per cent respectively) and Google-parent Alphabet (2.5 per cent).
Over 20 years the fund has more than doubled the benchmark’s total return with a gain of 697.25 per cent.
While not metrics used in this study, the fund also has a top quartile in risk-return measures such as Sharpe ratio as well as the second-lowest maximum drawdown figure of the four and would have lost just 27.76 per cent if bought and sold at the worst-possible times.
Performance of funds vs index over 20yrs
Source: FE Analytics
GAM North American Growth
The second fund on our list is the £194.2m GAM North American Growth fund, headed up by FE Alpha Manager and investment veteran Gordon Grender, who has overseen the fund since 1985.
GAM North American Growth invests in a concentrated portfolio of companies based on intensive, bottom-up research.
Indeed, the portfolio include names that UK-based investors may be less familiar with, such as top holding ICU Medical, which develops, manufactures and sells medical technology used in vascular therapy, oncology and critical care applications.
Of the four funds, GAM North American has the best bear beta figure of 0.57 – for every 1 per cent fall in the benchmark, the fund has fallen by 0.57 per cent – and the lowest downside risk.
It also had the best downside capture of the four at 95.69 per cent, although this would still have captured the bulk of the benchmark’s poor performance.
The fund has delivered a 616.22 per cent total return over the past 20 years.
Schroder US Smaller Companies
The only IA North American Smaller Companies fund on our list is Schroder US Smaller Companies. It has been managed by FE Alpha Manager Jenny Jones since 2002, who was joined by Robert Kaynor earlier this year.
Unlike the other funds in this study, this strategy invests at least 80 per cent of its assets in small-sized companies – defined as those at time of purchase that are similar in size to the bottom 20 per cent of the US market.
A highly-diversified portfolio with 120 holdings, the largest position – after cash – in the fund is technology company Ciena, which makes up 1.6 per cent of the portfolio. Other top holdings include insurer Brown & Brown, hydroelectric company Idacorp and consumer discretionary conglomerate Brunswick.
Over the 20-year period Schroder US Smaller Companies has generated a total return of 930.85 per cent, the highest of the four.
Performance of funds vs index over 20yrs
Source: FE Analytics
Smith & Williamson North American Equity
The last fund in the study is the £68m Smith & Williamson North American Equity fund, which has been managed by Tim Day and Chris Ford since 2015, although it – like the Fidelity fund – has seen a number of managers over the past two decades.
The fund targets long-term capital growth by investing in companies up and down the market cap scale in the sectors of the North American and global economies with the best growth prospects.
Its top holdings include technology company Microsoft at 5.1 per cent of the portfolio, Alphabet (4.8 per cent), UnitedHealth Group (4 per cent), games company Activision Blizzard (3.2 per cent), and payment processing firm Worldpay (3.1 per cent).
Smith & Williamson North American Equity has the second-lowest downside risk figure of the four and is the least volatile over the period at 14.94 per cent.
However, of the four funds it has delivered the lowest total return over the past two decades and is up by just 379.77 per cent.