The usual explanation is that there are so many analysts focused on this area of the market that it is impossible to consistently gain an edge.
However, one manager told FE Trustnet last week that the main problem is that fund managers operating in the US are too afraid to make off-benchmark decisions for fear of being fired.
Our research shows that a handful of US funds have consistently added value to their benchmark over the past five years, through the financial crash of 2008 to the rising markets of 2009 and 2012.
While there are not many that have managed to do this, the most successful funds in the sector have produced substantially better gains than their benchmark, making a case for choosing active management in the market.
US managers that have added the most value over 5yrs
| Name | 5yr annualised alpha |
|---|---|
| GAM - North American Growth | 6.88 |
| Threadneedle - American Extended Alpha | 4.45 |
| Jupiter - North American Income | 3.6 |
| Threadneedle - American | 2.88 |
| Schroder - US Mid Cap | 2.51 |
| Baillie Gifford - American | 2.45 |
| Scot Wid - American Growth | 2.42 |
| Henderson - US Growth | 2.13 |
| Neptune - US Opportunities | 2.11 |
| Threadneedle - American Select | 2.1 |
Source: FE Analytics
FE Alpha Manager Gordon Grender tops the list of the managers to add the most value in the IMA North America sector.
His GAM North American Growth fund has added 6.66 per cent of alpha to the S&P 500 for each of the past five years, compared with 4.45 per cent from Threadneedle American Extended Alpha, the next best performer on the list.
His fund is the standout portfolio in the sector, topping the tables over three and five years.
It also has the highest Sharpe ratio – a measure of risk-adjusted returns that shows how much risk the manager has taken on for each unit of performance.
Grender has been running the fund since 1985. Since January 1990 he has made 1,683.65 per cent, compared with 606.68 per cent from the S&P 500.
Performance of fund vs sector over 20yrs
Source: FE Analytics
Threadneedle American Extended Alpha, managed by Stephen Moore, has made 74.9 per cent over five years, compared with 56.56 per cent from the S&P 500 and 49.06 per cent from the average fund in the sector.
The fund uses derivatives to enhance its returns, and the result can be a portfolio that is highly geared, with up to 130 per cent exposure to the stocks it holds.
The manager also has the ability to short stocks, profiting if they fall in value.
Threadneedle American Extended Alpha has marginally outperformed the third fund on the list, Jupiter North American Income, over three and five years.
The Jupiter fund has added alpha worth 3.6 per cent a year to the S&P 500 .
There is no North American income sector, with few US funds hunting for dividends.
The Jupiter fund currently yields only 1.6 per cent.
Cormac Weldon’s Threadneedle American, which unlike its sister fund cannot use derivatives, is next on the list, having added alpha worth 2.88 per cent to the S&P 500 over the past five years.
Schroder US Mid Cap, in fifth place, invests in mid-sized companies, so takes the Russell 2500 index as its benchmark.
Our data shows it has added 2.51 per cent of alpha a year to the performance of the index over the past five years.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Weldon also manages Threadneedle American Select, the 10th fund on this list and the third run by Threadneedle, which has added 2.1 per cent annualised alpha to the S&P 500 over this period.
Funds from Baillie Gifford, Scottish Widows, Henderson and Neptune complete the top-10.
FE Trustnet has already examined two UK sectors for this series – IMA UK All Companies and IMA UK Smaller Companies – and it is undeniable that the degree to which the US funds have outperformed their benchmark is substantially less.
Two of the funds on the list – Baillie Gifford American and Neptune US Opportunities – have even narrowly underperformed over five years.
Over three years the case looks even worse for active funds, with the S&P 500 outperforming all but GAM North American Growth on the list.
However, our research suggests that picking a tried and tested active manager could be worth it in the long-run.
This may be due to active managers being able to cushion the effect of falling markets. The maximum drawdown on the S&P 500 is worse than that of all but one of the funds on our list while the volatility is higher than all but three.