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Investing in independence: Funds to think about this 4th of July

03 Jul, 2024 | Return|

Hailed the land of the free and the land of opportunity, to mark US independence day, our research team have taken a look at the funds catching their eye across US equity, fixed income and passive investing.

Key takeaways:

  • In the face of ongoing political dynamics, historical data underscores the resilience of US markets to election outcomes, showing minimal long-term impact on investment trends.
  • For investors, a key consideration is the most appropriate means of accessing the potential returns of the US market.
  • Despite concerns over concentration risks posed by large tech stocks, the US market presents diverse investment opportunities across various sectors and market cap sizes.

Is the US immune to political risk?

Since its founding, the United States has been feted as the land of opportunity where people from around the world have flocked to pursue the American dream. The ambition, aspiration, and innovation of its citizens have built what is now the world’s biggest economy, home to several trillion-dollar companies. The strengths of these businesses have driven stock market returns, most notably a handful of mega cap tech stocks – the likes of Nvidia, Microsoft, and Amazon. This has led to renewed concerns of concentration risk, with these stocks being such a significant component not only of the US index, but global indices as well. Nonetheless, the scale of the US market means that there are compelling opportunities among firms across the market cap spectrum for investors with the skillset to identify them.

The US is not immune to other challenges which all countries face, not least political risk, and 2024 sees the presidential elections, the results of which seem difficult to call going by current polling. However, in the US as elsewhere, markets have historically proved to be incredibly resilient to the outcomes of the race to the White House. When these elections have fallen at particularly challenging times – for instance in the wake of the dotcom crash of 2001 and the global financial crisis of 2008 – markets have shrugged them off and the general trend has been all but unaffected. Indeed, following Donald Trump’s shock victory in 2016, markets dropped sharply only to rebound almost as sharply.

“The Magnificent Seven” (five)

For investors, a key consideration is the most appropriate means of accessing the potential returns of the US market. With so much of the recent market performance being driven by the so-called Magnificent Seven, passive vehicles tracking the index have served investors well but for those seeking diversification from this handful of stocks, there are many actively managed equity, fixed income, and multi-asset strategies worth considering.

The Square Mile Responsible Recommended rated Liontrust Sustainable Future Managed Growth fund might appeal to investors seeking exposure to the US with the diversification benefits of a multi-asset approach. As well as aiming to deliver capital growth through a blend of global equities and fixed income, this strategy seeks to make a positive contribution to the planet and society by aligning its assets with at least one of the team’s 20 sustainable investment themes which are linked to better resource efficiency, improved health, and greater safety and resilience. The highly experienced team looks to invest in the economy of the future, favouring companies proactively managing their own interactions with society and the environment. The managers invest between 60%-100% of the portfolio in a relatively concentrated set of primarily international companies with 65.3% currently invested in the US (as at May 2024).

The WS Lindsell Train North American Equity fund is a compelling option for investors seeking a pure play on US equities and has a Positive Prospect rating. As an unconstrained strategy, the fund is expected to have a high active share and a bias towards quality businesses. Whilst comparison to the MSCI North American index is appropriate, the manager is primarily focused on absolute returns through a concentrated portfolio of companies which offer durable and sustainable returns over time and diversification away from the market or Big Tech focused strategies. While this approach may lag when the market is driven by a small cohort of names, it is consistent with the firm’s overall philosophy, and the fund should appeal to UK investors seeking to focus on quality within their North American equity exposure.

The A rated TM Natixis Loomis Sayles U.S. Equity Leaders fund is another concentrated strategy investing in US equities with a bias to a limited number of sectors aiming to deliver capital accumulation over the long term. The manager adopts a sensible approach to ensure an adequate level of diversification to mitigate risk and applies a strict set of stock selection criteria. The final portfolio is constructed without reference to its benchmark, with the manager preferring to exploit a range of business drivers such as e-commerce, ophthalmology and online advertising.

The A rated T. Rowe Global Focused Growth Equity fund is an attractive option for investors preferring to delegate their US allocation to a fund manager with a global mandate. Its portfolio parameters permit a 20% deviation in the fund’s US exposure from the MSCI AC World index but the fund provides broad regional and industry exposure with a distinct bias towards largely capitalised growth stocks. The manager has a high conviction mindset and given the fund’s aggressive performance objective, it is perhaps best suited for investors with an appetite for risk. It has delivered strong relative performance in rising markets, but it may underperform the index during times of market stress.

For investors seeking exposure to US fixed income assets, the AA rated PIMCO GIS Mortgage Opportunities fund is an interesting income strategy offering access to a non-traditional asset class that is not widely accessible to UK investors. It seeks to generate absolute returns across the full market cycle with limited correlation to traditional sources of risk such as equities, high yield, and core bonds. It does so through an actively managed portfolio of securitised assets with a minimum of 80% allocated to mortgage backed securities. These include a wide array of agency (government guaranteed) and non-agency, residential, and commercial mortgage backed securities predominantly issued in the US.


Important Information

This document is issued by Square Mile Investment Consulting and Research Limited which is registered in England and Wales (08791142) and is a wholly owned subsidiary of Titan Wealth Holdings Limited (Registered Address: 101 Wigmore Street, London, W1U 1QU). Unless otherwise agreed by Square Mile, this is only for internal use by the permitted recipients and shall not be published or be provided to any third parties. This is for the use of professional advisers and other regulated firms only and should not be relied upon by any other persons. It is published by, and remains the copyright of, Square Mile Investment Consulting and Research Ltd (“SM”). SM makes no warranties or representations regarding the accuracy or completeness of the information contained herein. This information represents the views and forecasts of SM at the date of issue but may be subject to change without reference or notification to you. SM does not offer investment advice or make recommendations regarding investments and nothing in this shall be deemed to constitute financial or investment advice in any way and shall not constitute a regulated activity for the purposes of the Financial Services and Markets Act 2000. This shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity. Should you undertake any investment activity based on information contained herein, you do so entirely at your own risk and SM shall have no liability whatsoever for any loss, damage, costs or expenses incurred or suffered by you as a result. SM does not accept any responsibility for errors, inaccuracies, omissions, or any inconsistencies herein. Unless indicated, all figures are sourced by Lipper, a Refinitiv Company (all rights reserved). Past performance is not a guide to future returns.


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