The US has never been a happy hunting ground for UK retail investors as it has traditionally been an area of the market where few managers have consistently outperformed.
Traditionally, financial advisers would never allocate more than 5 per cent of a client’s assets into US retail funds, but as the nation celebrates its Independence Day are US equities set to catch the eye?
Demand for developed markets appears to be on the rise – particularly with concerns over a hard landing in China hitting emerging market funds.
If you want numbers to back up the growing interest in the US you need look no further than the Investment Management Association’s monthly statistics for April were there were £98m of net retail sales, this is a big jump when you consider that the average monthly inflow for the past 12 months is £2m for North American funds.
The global financial crisis hit the world’s largest economy harder than most as savers seeking higher returns pulled out of the US as house prices sagged and jobs vanished, while the manufacturing sector also took a hit.
But could this all be about to turnaround?
Some prominent US fund managers believe this may be the case. Neptune US fund manager Felix Wintle even claimed earlier this year that the US had entered a bull market for the first time in a decade. Wintle cited energy independence; an improved housing and manufacturing sector and the continued move by investors from bonds to equities as reason for optimism.
Recent figures back up the hope with US funds topping the performance charts in May. Funds in the IMA North American Smaller Companies sector rose by 7.3% on average in May while the North American sector rose by 6%. Don’t forget the Dow Jones Industrial Average closed at an all-time high at the end of May, boosted by US home prices and consumer confidence.
Meanwhile, CoreData’s latest i-Sight Tracker shows sentiment was rising markedly in North America for the second half of 2013. A 17 point uptick gave it an absolute score of 42, just behind the likes of Emerging Markets, Global and Asia ex-Japan sectors in terms of overall regional appeal.
The one cloud on the horizon was the potential tapering off of quantitative easing by the Federal Reserve later this year or early next as unemployment in the US is now starting to fall in line with expectations. However, that debate may be put on the back burner after a report last week showed the US economy emerged from the first quarter much weaker than expected.
The economy expanded at an annual rate of 1.8 per cent in the first three months of the year, shy of the previous estimate of 2.4 per cent, according to the Commerce Department.
The message with US funds has always been to expect the unexpected. While it does look attractive investors looking to add to their weighting need to go with experienced managers that do not look to shoot the lights out with their process. An aggressive approach could see investors get their hands burned – again.