If there is one factor that should be exercising investors’ minds at present, it is the Presidential election in the US. While there is no reason to believe that a change of President need make much difference to markets, on this occasion it has been the Trump factor that has been so influential. What might the US be under the leadership of someone who, on the face of it, seems both controversial and arguably unstable? Markets, though, seem to be discounting his victory.
Of course, the outcome of this particular race is far from being a foregone conclusion. In any event, there are other things to concern investors before November, such as China’s economic slowdown and life after quantitative easing. Then there is the likelihood of disappointing earnings emerging from many major companies. From being the bastion of the post financial crisis recovery, America’s star appears to be fading.
But this is a very self-sufficient economy – far less dependent than most on what is happening in the rest of the world. Not all the news has been bad, with employment holding up and a more confident consumer helping to keep the economy in positive shape. Not that this important global player is without challenges. There had been forecasts recently of energy self-sufficiency being achieved soon through shale oil and gas deposits. The collapse in the oil price has put an end to that.
As it happens, US markets held up remarkably well in the switch to a risk-off approach to investing that gripped investors as China slowed and geo-political tensions rose. While shares there were not immune from the sell-off that took place last summer, but they have recovered reasonably well. While the average fund has been in negative territory when compared with a year ago, over the past six months the bounce has been useful, up by nearly 12.5 per cent.
Looking at the tables, Legg Mason ClearBridge stand out as having a number of funds delivering consistent above average performance. A wholly owned affiliate of Legg Mason, ClearBridge operates solely from within the US and specialises on running US equity portfolios. With a wide range of funds it should not be too surprising that some do not feature so highly, but generally their record is good.
So too is that of Fidelity, another giant of the American fund management industry. As with the Legg Mason Large Cap fund, which it tends to trail, its Special Situations fund has been having a tougher time in recent months, while Fidelity American is much further down the tables over most time frames. Old Mutual, on the other hand, has proved more consistent and it certainly does not follow that US managers necessarily lead the field when it comes to the performance stakes.
At the other end of the spectrum, we do see a Legg Mason fund holding up the six months table. The Opportunity fund is down by 3.6 per cent on a total return basis – the only fund to deliver a negative return over this period. In the longer term tables, CF Richmond, which has been around for some 13 years, has a most disappointing record, staying at or close to the bottom over all time frames.
It is to the future we should be looking, though, which is altogether a more difficult call to make. Despite announcing an end to its aggressive monetary easing policy, the Federal Reserve Bank is still remarkably dovish in its approach to raising the cost of money. Clearly the risk of upsetting a fragile economic recovery will be exercising the minds of the Open Market Committee and doubtless they will have had the lessons of the 1930s, when a premature end to monetary easing tipped the economy there back into recession, drummed into them.
This uncertainty, along with that of who may end up in the White House, may well weigh on markets facing earnings downgrades and standing at levels that are not cheap by either historic or comparative standards. It is a brave man who stands aside from this market, with its powerful presence in technology and free market ethos, but this year may continue to prove difficult for investors.
12.5% The “bounce” in US funds since the sell-off last summer
3.6% Fall in Legg Mason’s Opportunity fund over past six months
11% Return of Loomis Sayle US Equity Leaders fund over one year
69.5% Average return of funds over five years
-0.2% Average return over one year