“While the US has not traditionally been as dividend-friendly as Europe, we are continuing to witness encouraging behaviour from corporates, which are increasingly flush with cash,” Mr Sarkissian says.
“We remain highly confident in our positioning in undervalued companies, which we expect to outperform over the medium to long term.”
The fact remains that North American active funds do not sell as well as their global or UK counterparts, with many investors preferring tracker products in the belief that the market is hard to beat. Fund performance tells a different story. Table 1 shows the top performing unit trusts and investment trusts over five years based on an initial £1,000 investment according to FE data.
What is immediately clear is the outperformance of open-ended funds over five years. The average return across the North America and North American Smaller Companies sectors is 18 per cent annualised – giving the investor £2,299 over five years based on the initial £1,000. The top performer is an unusual fund in that it is not a country-specific fund but sector-specific. The Julius Baer Multistock Health Innovation Fund has a focus on healthcare, which is one of the biggest industries in the US – but one possibly at risk from a Clinton presidency.
It is not often that you see open-ended funds outperform investment trusts in a bull market, but such is the case with North American funds, although investment trusts have by no means performed badly. The average trust saw a 15.3 per cent annualised return over the past five years.
The top performer from the two North American Smaller Companies sectors is the JP Morgan US Smaller Companies trust. The closed-ended fund has a strong focus on financial services (22.8 per cent) and consumer discretionary (18.5 per cent) sectors. It should be noted that while the fund sits within the smaller companies space, a North American small-cap is much larger than that of the UK. Some US small caps can be the size of UK large caps. So while it is technically investing in smaller companies, relative to the UK it is not much different to owning larger companies.
Where to find returns
The best performing small-cap open-ended fund is the T. Rowe Price US Smaller Companies Equity fund, which invests in a widely diversified portfolio of stocks, with a high concentration in financials. Eric Papesh, US equities portfolio specialist at the group, believes corporate earnings are the primary driver of stock market returns. He says earnings growth has varied dramatically over the past few years, and some sectors have experienced greater headwinds.
