Leader: US equity funds in the dog house

FS Adam Lewis 160 byline

“Doghouse”, “kennel club”, “best of breed”, “mutts” … No, this is not Crufts – just one financial adviser’s way of highlighting both the best and worst of the retail funds universe.

Bestinvest’s Spot the Dog guide has been going almost two decades, yet its biannual release, which is full of pretty much every dog metaphor you can think of, is the one that normally provokes the biggest reaction from the named and shamed fund management groups. Or, sorry, the one that provokes the most bite.

However, getting away from branding funds mutts and so on, the latest research does reveal an interesting trend. Despite the US being one of the developed markets’ strongest economies, funds invested in US equities seem to be having the toughest time. According to Bestinvest, 21 per cent of funds in the IMA North American sector have underperformed their benchmark in each of the past
three years, and by 10 per cent over the entire three-year period of analysis.

This gives further weight to the view of many in the passive brigade that outperforming consistently in the US is one of the hardest jobs in active management. Those who do deserve a nice pat behind the ear. Sorry again.

Getting away from the mongrels, this week’s cover story (see page 14) by James Smith takes a look at the case for investing in water. Commodities in general have not had a great year, with the fall in the gold price the obvious example. This has led many to question whether the super-cycle of the past decade has come to an end.

In the Western world there seems to be the assumption that water is an unlimited commodity. As such, it is no surprise it is not mentioned in the same breath as oil, gas and gold, etc.

However, when you hear that water demand is set to outstrip supply by 40 per cent by 2030, which has the potential to put $63trn (£41trn) of global GDP at risk by 2050, you might make extra an effort to make sure the tap is not still running upstairs.

Fund Strategy will be taking a holiday break next week and we will also be running fortnightly issues in August, on the 7th and 21st of the month. Enjoy your summer break, whether you are getting away or staying in the sunny UK.