The US represents around 45 per cent of the MSCI World index, yet figures from Trustnet suggest that on average investors have less than three per cent of their assets invested in the region.
Despite being at the epicentre of the "credit crunch" as well as suffering from many of the structural problems that haunt the UK economy; such as over indebted consumers, an over indebted government, shaky financial system and increasing unemployment, this huge underweight could cause investors to miss out on some excellent opportunities. One of these opportunities comes in the form of the Neptune US Opportunities fund.
The fund is one of the star performers in the IMA North America sector returning 29.05 per cent over three years, beating its peer group by 31.4 per cent and its benchmark, the S&P 500 index, by 30.84 per cent, making it the best performing fund in the sector. It has an equally impressive track record over five years; a return of 72.55 outperforms the S&P 500 by 55.65 per cent, again making it the top performing fund in the sector. The fund is also top quartile over one year. What makes these returns more impressive is that they have been achieved without incurring additional risk. The funds annualised volatility over the three years has been in line with the IMA North America sector average and marginally lower than the S&P 500 index.
Source: Financial Expres Analytics
To achieve this performance the fund has drawn on Neptune’s top down views on asset classes and sectors and combined it with the bottom up stock picking talents of fund manager Felix Wintle, assistant manager Rebecca Young and the well resourced analyst team.
The fund generally holds a small concentrated portfolio of high conviction stocks that meet the manager’s requirement of above average growth expectations. This concentration will lead to substantial deviation from the index composition and this is reflected in the high level of active risk borne by the fund, its annualised tracking error relative to the S&P 500 of 15.22 is one of the highest in the sector. Wintle is not yet a Trustnet Alpha Manager, but if the fund continues to produce alpha of 9.88 per cent then it is only a matter of time before he is awarded this prestigious accolade.
This risk is partially mitigated by a reduced dependency on market movements, the funds low correlation with the benchmark and low beta reduce the funds market risk, and the returns produced by the funds active style offer adequate compensation. The fund has the highest information ratio in the sector suggesting that the management team have been the most successful stock pickers.
One negative point on the funds otherwise excellent report card is its relatively poor short-term performance. Over one, three and six month periods the fund has been in the third and forth quartiles; in the context of the funds long term investment horizon this is not especially troubling, it is worth remembering the old adage that past performance is no guaranteed of future returns.
While it may be tempting to see the developed world as a lost cause and submit to the siren call of China and the other emerging markets with their persistent high growth, this would be a mistake. The sheer size of the US market means there will always be companies that offer attractive opportunities and this is an ideal environment for a fund with a proven stock picker at the helm.
| Ratio | Fund | Rank in sector |
| Volatility | 18.02 | 25/70 |
| Sharpe | 0.3 | 1/70 |
| Tracking Error |
15.22 | 68/70 |
| Information Ratio |
0.63 | 1/80 |
| Alpha | 9.88 | 1/70 |
| R Squared |
0.46 | 68/70 |
Both strategies have the potential to outperform and in the long run and ultimately it will be the choice of manager that will be the difference between over and under performing.
| Click here for IMA North America sector: Sector overview |
| Click here for IMA North America sector: Fund managers' viewpoint |
| Click here for IMA North America sector: What the papers say |
| Click here for IMA North America sector: North America funds in focus |
| Click here for IMA North America sector: IFAs' viewpoint |
| Click here for IMA North America sector: Neptune US Opportunities fund |