Around half the funds in the IA North America sector have outperformed the S&P 500 since Donald Trump won the 2016 US presidential election, according to a study by FE Trustnet.
The US has led markets higher in the period since the global financial crisis, fuelled by the low-rate environment and support from the Federal Reserve.
The election of Donald Trump as president at the end of 2016 following a highly partisan campaign, boosted markets fuelled by his pro-business stance and promises to end some onerous regulations.
Indeed, since the election of Trump markets have continued to rise – albeit with the exception of last year, after a period of tightening by the Fed – with the S&P 500 index rising by 45.42 per cent, in sterling terms.
As the below table shows there are a number of growth strategies to be found among the best performers, a fact that Daniel Pereira, investment research analyst, Square Mile Investment Consulting and Research, attributes to a couple of reasons.
Source: FE Analytics
“There are two key areas which have caused growth stocks to soar,” Pereira said. “Given the low interest rate environment since the 2008 global financial crisis, companies have been able to finance their growth though a relatively low cost of debt, which has in turn accelerated their growth plans.
“The other is the impact of algorithmic trading, which is driving certain share prices higher. This is more notable amongst the large index constituents and those stocks widely held in a vast number of ETFs, such as technology stocks.
“Algorithmic trading shows little to no regard to company fundamentals or valuations, and can cause more pronounced market movement, both on the up and downside.”
The £2.4bn Baillie Gifford American fund emerged as the best performer over the period, with a total return of 100.76 per cent. The growth-focused fund is team managed by Gary Robinson, Helen Xiong, Tom Slater, and Kristy Gibson and is four FE Crown-rated.
Up next is the $2.7bn Morgan Stanley US Growth with a 93.3 per cent gain and is also team-manage and headed up by Dennis Lynch. The five FE Crown-rated fund targets long-term growth by investing in “high-quality established and emerging companies with sustained competitive advantage,” strong cash flow and return on capital.
Third on our list is the £237.5m UBS US Growth fund, which is managed by Peter Bye. The four FE Crown-rated funds is not benchmarked against the S&P 500, aiming instead to outperform the Russell 1000 Growth index over a three-to-five year period. Since Trump was named president, the fund has returned 66.63 per cent, compared to a 41.10 per cent gain for the Russell 1000, an index of large and mid-cap stocks exhibiting growth characteristics.
Others on the top-10 list include five FE Crown-rated Brown Advisory US Equity Growth, managed by Kenneth Stuzin, and ranking ninth with a 74.87 total return. Michael Hayward’s Investec American Franchise gained 75.92 per cent; while T. Rowe Price US Large Cap Growth Equity, managed by Taymour Tamaddon, returned 75.89 per cent.
It wasn’t just funds higher up the market cap scale that have outperformed, however.
According to data from FE Analytics, 11 funds out of the 17 that make up the IA North American Smaller Companies sector managed to outperform the Russell 2500 index, a commonly used small- and mid-cap benchmark.
Source: FE Analytics
The best performer among them was the JPM US Small Cap Growth fund – co-managed by Eytan Shapiro and Timothy Parton – which returned 92.61 per cent.
Next in ranking is the Artemis US Smaller Companies fund, which gained 68.96 per cent. The four FE Crown-rated fund is managed by veteran investor Cormac Weldon, and aims to achieve long-term capital growth.
The third-ranking fund is the T. Rowe Price US Smaller Companies Equity which returned 59.46 per cent. The $1.5bn five FE Crown-rated fund, managed by Curt Organt.
While there has been strong performance by many US equity strategies since the election of Trump, the divisive character cannot claim sole credit, according to Square Mile’s Pereira.
“The strong economic backdrop has certainly been a tailwind, but companies have been in charge of their own destinies,” he said. “The companies that are currently driving the US equity market returns are those who are disrupting the incumbents and have clear plans to grow their businesses and, in many cases, require limited capital to do so.”
Indeed Tom Sparke, investment manager at GDIM, said the key to US market growth has been technology.
“Growth assets have been driven by huge gains in technology-based companies as online giants, such as Amazon, Alphabet, Facebook and Microsoft extended their multiples enormously,” he said. “Value sectors such as commodities and financials have continued to struggle in recent years, in contrast to the hot stocks in more favoured areas.”
Performance of style indices since Trump election
Source: FE Analytics
Sparke believes valuations of the wider market “are a little stretched as the cycle has come so far”. He expects some signs of deterioration in the next 12 to 18 months.
“As such, I think that it would be wise for investors in growth assets to move to a more balanced style, as the falls could be especially severe in these companies,” he said.