Having surpassed the longest-ever recorded bull market last week, investors in US equities will have witnessed a decade of steady growth despite a number of serious challenges to the post-crisis environment.
The S&P 500 entered its longest-ever bull run on 22 August – having begun on 3 March 2009 – after going 3,453 days without a 20 per cent correction and overhauling the previous record set between 1990-2000.
During that time the blue-chip S&P 500 index has delivered a total return of 414.03 per cent in sterling terms – and 372.52 per cent in US dollars – compared with a 291.32 per cent gain for the MSCI AC World index.
Growth of the index has been fuelled by ultra-low interest rate environment and flood of liquidity as a result of unprecedented quantitative easing measure enacted following the global financial crisis of 2007-2008.
Performance of indices since March 2009
Source: FE Analytics
The 1990-2000 bull run came to an end after the so-called ‘Dotcom bubble’ burst and technology valuations crashed. Given the strong performance of markets led by the growth-oriented, technology-focused FAANG – Facebook, Amazon, Apple, Netflix and Google-owner Alphabet – some fund managers have warned of a repeat of those conditions.
Kames Capital investment manager Carolyn Bell said that the US bull market could yet run longer however, noting that there are a number of positive signs.
“Bull markets end when such confidence becomes over-exuberant, generating imbalances and egregious valuations. We are not there yet,” she said.
“Capex levels are still modest, though rising, and equity risk premiums around 5 per cent are still generous. While the US may seem expensive relative to other markets, it is not expensive relative to its own trading history.”
Bell said fundamentals remain very supportive of valuations, while record levels of cash on balance sheets and the potential for more corporate activity could contribute to further rises in the market.
“The latter stages of a bull market can sometimes be the most rewarding,” she added.
As such, for those believing market conditions can continue for some time, FE Trustnet considered the funds that have made the most of the epic US market bull run. Please note, past performance is not a guarantee of future returns.
The best performing fund over the epic 10-year US bull run has been the $2.8bn Morgan Stanley US Growth fund, with a return of 672.88 per cent.
The fund – along with several other growth-focused strategies – has been a beneficiary of the extraordinarily strong momentum trend of the past decade.
But not all funds were able to keep pace with the soaring S&P 500 index, however. Indeed, the average IA North America fund was up by 349.31 per cent – lagging the index by 64.72 percentage points – once again putting active management under a spotlight.
For this article we looked at funds with top quartile upside capture ratios demonstrating the fund’s performance in an up market – when the market has risen – relative to the S&P 500.
An upside capture ratio greater than 100 per cent should indicate that during periods when the market has risen, the fund has on average performed even better than the S&P 500 index.
Source: FE Analytics
The best-performing $2.8bn four FE Crown-rated Morgan Stanley US Growth fund, overseen by Dennis Lynch, has the second-highest upside capture ratio of 157.37 per cent.
However, the fund which has performed better than the S&P 500 in ‘up market’ conditions was T. Rowe Price US Large Cap Growth Equity.
The $1.8bn four FE Crown-rated fund, which has been managed by Taymour Tamaddon since early last year, has an upside capture ratio of 164.23 per cent helping it towards a total return of 561.76 per cent.
Another strategy with an impressive upside capture ratio is the $627.8m four FE Crown-rated T. Rowe Price US Blue Chip Equity fund managed by Larry J Puglia, which has outperformed the S&P 500 index by 47.68 per cent in the up market.
While the market has seemed pretty unstoppable at times, there have been some corrections over the past 10 years – particularly this year with the return of greater volatility.
As such some funds have been better at riding the downturns than others and, for investors concerned the epic bull run might be drawing to a close, below we looked at the funds that have weathered market turbulence better over the past decade.
The table below shows the funds that have top quartile downside capture ratio relative to the S&P 500 – with a score of 100 per cent or less demonstrating that when the market fell, the fund caught just a fraction of negative performance.
Additionally, we have further distilled the data to include those funds that were also top quartile for maximum drawdown, that is the return if the fund were bought and sold at the worst possible prices.
Source: FE Analytics
At the top of our table is Morgan Stanley US Advantage – the four FE Crown-rated, $7.6bn fund another strategy overseen by Dennis Lynch and his team.
It has the best downside capture ratio and would only have caught 90.11 per cent of the S&P 500’s negative return. The fund also has the best maximum drawdown figure and would have lost just 7.88 per cent if bought and sold at the worst possible times.
Another with a low maximum drawdown figure was the four FE Crown-rated Baillie Gifford American fund, which would have lost just 9.73 per cent if bought and sold at the worst possible times.
The £1.8bn growth-oriented fund is co-managed by Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson. It is also the strongest performer on this list with a total return of 573.42 per cent over the period.
“The fund’s benchmark-agnostic approach is encouraging where the team pays no attention to benchmark constituents/weights when constructing the portfolio,” noted analysts at FE Invest.
“The fund exhibits an above-average level of volatility due to it being heavily concentrated in high conviction positions”