American equity markets offer significant long-term rewards, despite the growing strength of emerging markets, fears of a double dip and short-term uncertainty about the economy.
Someone said that if you spent $1m a day, every day of the week, until the year 3650, you still would not have exhausted the pot of cash from the second phase of quantitative easing (QE) announced by the American authorities. And that is based on the face value of this round of QE – $600 billion (£375 billion). It has been suggested that the real cost could be as high as $900 billion – or three times what was spent first time around.
It has not been all sweetness and light for investors in America. The S&P 500 index – probably the best bellwether of the American market – has been as volatile as our own benchmark indices over the past decade. The American market is, after all, more influenced by technology stocks than is Britain’s domestic market, so the early days of the new millennium were particularly tricky.
”Even Warren Buffett has remarked on the capricious nature of the investment market, while still remaining committed to the concept of buying quality businesses”
More recently attention has focused on the failings of the financial sector and the significant deficits and the accumulated debt both in the private and public sectors. Indeed, once again it is popular practice to write off America as fast fading history, surrendering its glorious past to the youthful tigers of East Asia and Latin America.
Forty years or so ago Bretton Woods collapsed, the Vietnam war was on the brink of being lost, the Watergate scandal undermined the credibility of the Oval Office and the dollar seemed destined to dwindle in value. It was not long, though, before concerted action was needed from the world’s most powerful economies to restrain its strength. Later Japan seemed set to rise to number one, but not only did America claim ownership of the technological revolution and consign its economic rival to the sidelines, it found time to see off the Soviet Union as well. (article continues below)
So ignoring America should not be considered by anyone planning a long-term investment strategy. Helped by the make-up of its population and a progressive approach to immigration, America enjoys a healthier demographic profile than Germany and Russia or China and Japan. Even though the outlook is cloudy – particularly while the outcome of quantitative easing remains in doubt – for longer-term investors it must be monitored carefully.
There is plenty of choice for would-be participants in the fruits of the American dream. With 85 funds enjoying a record of six months or more in the IMA North American sector, and still more committed to the Smaller Companies sector which comprises the bottom 20% by market capitalisation, investors have more of a problem in selecting which fund to add to their portfolio than in deciding whether to establish exposure to the largest stockmarket in the world.
Naturally, the disparity in performance is as wide as it is anywhere, underscoring the need for research. Over five years the best performing fund, run by Neptune delivered growth of close to 60%, but it would have been possible to lose money, with five funds in negative territory. Indeed, the worst performing fund – run by Legg Mason – lost nearly 30%.
But this is nevertheless a sector where the big houses feature strongly. BlackRock, Schroder, Threadneedle – even the embattled Gartmore – all have funds that have delivered consistent first quartile performance. Only one boutique stands out as delivering top of the table results – and that has proved a difficult fund on which to discover much information
The Greenwich fund is first over six months and one year and, despite having a poor three-year record (it fell into the bottom quartile, losing money for investors and coming in the bottom 10 funds), nevertheless finds itself at number six in the five year tables, returning over 33%. The fund is run by one Stephen E Memishian, a partner in a small firm of fund managers based an hour or so from New York City. The results are impressive, but with a high minimum entry level, it is not aimed at typical British investors.
Consistency is more of a problem than with other sectors, perhaps not surprising, given the size of this market. But even so there are plenty of well-known names offering sound records, so finding a suitable fund should not prove too demanding. Many traditional managers in America have found conditions tricky. Even Warren Buffett has remarked on the capricious nature of the investment market, while still remaining committed to the concept of buying quality businesses at undemanding valuations.
The immediate oulook may prove difficult. While risks of a double dip appear to be receding, solving the deficit problem and restoring consumer confidence will be a long haul. The decline in the dollar may not be over either, but writing off this bastion of capitalism could prove a costly mistake – as it has more than once in the past.