Mark Dampier: Funds should benefit as US looks further ahead
Saturday 21 April 2012
The American sector seems to be a graveyard for fund managers in the UK. Given the size and dynamism of the American economy you might expect a decent number of good-quality funds to invest with.
Yet it is hard to find a manager that has consistently outperformed the market to a significant degree. Indeed, there have been some notable falls from grace. For instance, the Legg Mason US Value Trust, run by Bill Miller, outperformed the S&P 500 each year for more than 15 years, only to lose its entire outperformance in the space of a few years surrounding the credit crunch.
It is rather frustrating because the US is an attractive market at present. We are seeing stronger signs of recovery than in other Western markets. Some of this is probably down to good old entrepreneurial spirit, coupled with the fact that net immigration means the demographics are better.
The US government also enjoys remarkably low borrowing costs given its finances. To my mind, this may mean trouble is being stored up for the future. There has been no real austerity to date, and at some stage after the November presidential election the $15 trillion debt pile will have to be addressed.
However, for now corporate America seems to be in rude health. One manager in the sector I have had my eye on is Aled Smith, who manages the M&G American Fund. Unfortunately he had a fairly poor 2011. Like many others he has struggled to outperform the market through different economic cycles, but in meeting Smith you can't help but be impressed by his enthusiasm and dedication.
The fund is very much about Aled Smith's process and principles. By and large it is built from the bottom up, focusing on individual stocks rather than taking any kind of macroeconomic viewpoint.
Yet since 2007 the economic picture has dominated US and global markets, which hasn't particularly suited the fund. Smith believes the market has been obsessed with short- term factors, preferring what are perceived as reliable, solid companies rather than looking forward three to five years to identify companies that can grow rapidly.
Essentially he is looking to identify tomorrow's "wealth generators", and believes a major opportunity to invest in such businesses has presented itself. He suggests the market today is impatient, demanding instant gratification from good quarterly earnings figures. Companies able to achieve this are being rewarded with higher share prices. But at the same time the market is punishing those whose short-term numbers are disappointing, without appreciating their efforts in investing for the future. According to Smith this has led to a disparity in valuations between the two.
He cites Apple, Wells Fargo and Pfizer as fashionable stocks that have pleased investors, yet he feels better opportunities may lie in companies such as Cisco and Citigroup. In particular he looks for turnaround situations, companies changing their business models leading to better returns for investors. He is especially excited by companies such as GE where investors have been scarred by past mistakes and are underestimating the growth potential. The stock yields nearly 4 per cent, an indication of the value available. He is also a holder of eBay, which has had a prolonged period in the doldrums, and Home Depot, which has undertaken an efficiency drive.
On markets generally, Smith is highly optimistic. He feels they are excellent value, and believes the US is leagues ahead of Europe and Japan when it comes to finding genuine world-leading companies.
Interestingly, he points out that only 17 per cent of active managers in the US outperformed in 2011, the lowest percentage since 1997. It's not exactly a glowing endorsement of active fund management, but it has potentially set up a significant opportunity for active fund managers to outperform if we enter an environment where long-term stock picking returns to the fore. It certainly seems possible that investors might lengthen their investment horizons at some point, something that should benefit Aled Smith's philosophy and his fund.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Five Questions: Changes to car tax discs
10 tips for taking out a personal loan
Ticking time bomb: Interest rate rises are coming, so start preparing now
Peer to Peer lending: This alternative market is offering firms a lifeline
Debt problems: How you can nip your money problems in the bud and sleep easy at night
- 1 Five-year-old Iris Grace is raising awareness of autism through her extraordinary paintings
- 2 Car tax disc changes: Two days to go - and they affect you much more than just not displaying a piece of paper
- 3 The Simpsons death: Creator Al Jean would 'kill himself' before character like Homer or Lisa
- 4 British man raped while urinating in bushes at Oktoberfest beer festival in Germany
- 5 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
Isis, we are told, is a 'clear and dangerous threat to our way of life'. I’m sorry, but I just don’t buy it
Exclusive: 'Putin's Russia has been my biggest regret,' says Nato's outgoing Secretary General
'Women, walk wherever you want' posters taken down in Stamford Hill following 'unacceptable' signs separating men and women
There’s no excuse for Dave Lee Travis’s behaviour, but we need to keep a sense of proportion
Mark Reckless becomes second Tory MP to defect to Ukip in a month
Should gay sex be illegal? 16% of Britons think so
- < Previous
- Next >
iJobs Money & Business
NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...
£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...
Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...
£300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...
Day In a Page
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location