Average fund in IMA North America sector returns 34.6% over past 12 months
US equities have risen over the last year, supported by monetary and fiscal stimulus, low interest rates, healthy corporate earnings results and a stronger dollar.
Funds in the IMA North America sector have participated in the recovery, with the average fund returning 34.6% over 12 months to 21 June, according to Morningstar. This is a significant improvement compared to the three-year view, which shows an increase of 1.4%.
M&G’s North American Value fund is the top performer over one year, up 49%. The worst performer over the same timeframe is Felix Wintle’s Neptune US Opportunities fund, up 22.5%.
Threadneedle’s £1.2bn American fund, run by Andrew Holliman since April 2004, is top quartile over one, three and five years.
The fund is ranked eight out of 84 vehicles in the North America sector over one year, up 40.4%.
The portfolio was positioned defensively at the start of 2009, but the manager was quick to react to the change from a deflationary environment to a reflationary one, driven by the US Government stimulus packages.
“This changed the playing field for many of our more cyclical investments,” Holliman says.
“We were successful in transforming the portfolio from a pretty defensive one to a more aggressive, economically cyclical one.”
Successful investments in the energy space helped drive returns. There were also specific winning stocks including Apple, which remains the largest holding in the portfolio, accounting for 5.3% at 31 May.
Property firm Jones Lang LaSalle was another strong performer.
Holliman explains: “It is very cyclical and we took the opportunity to buy the stock when it was very cheap in what we felt to be normalised earnings.”
He adds: “The market offers good value, given the strength of corporate balance sheets and free cashflow generation.
“Indeed, we hold a positive view of the market’s medium and longer-term prospects – even if economic growth falters.”
Tom Callan and Jean Rosenbaum’s small- and mid-cap BlackRock US Opportunities fund is ranked second in the sector over one year, up 46.8%.
Rosenbaum says: “We are part of a team that looks at securities globally and we are organised by industry.
“So while it is a US fund and buys US-domiciled companies, we understand the global environment in which the companies operate, which is unique for a US-based fund.”
The managers’ macro view on the downturn helped to drive performance last year.
Rosenbaum explains: “We looked at previous downturns and how stocks reacted and performed following those downturns.
“One of the things we found was stocks were particularly cheap coming into the beginning of 2009.
“We realised there could be a significant rebound and repositioned the portfolio to take advantage of this.”
At a sector level, consumer discretionary was a particularly strong performer.
“There were several stimulatory programmes that were helping the US consumer, so it was easy to see the likely upturn in this area, “ Rosenbaum says.
Winners over the last year include Western Digital, Priceline, Goodyear Tire and NetLogic.
Jenny Jones’ Schroder US Mid Cap Opportunities fund is the top performer in the peer group over three years, up 23%.
In general, she focuses on individual companies with strong business models and management, plus a competitive advantage.
Across the fund, Jones has three basic types of holding: mispriced growth, ‘steady Eddies’ and turnarounds.
In times of market volatility, the fund’s commitment to investing in ‘steady Eddies’ has proved beneficial. These are stable companies that generate dependable earnings and revenues.
Holdings that tie into this theme include WR Berkley, a property insurance company. The firm is one of the fund’s top 10 holdings at 2.4%.
Jones says: “Despite the volatility affecting global markets, we see many stock-level opportunities in the US mid-cap space. We believe the market will reward companies with strong fundamentals as conditions continue to normalise throughout 2010.
“While careful stockpicking remains key to the fund, we are closely watching how domestic developments – such as financial sector reform – will affect individual industries, from insurance to IT.
