Mark Dampier: Funds should benefit as US looks further ahead

The Analyst

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

Suggested Topics
PROMOTED VIDEO
News
The comedian, 42, made the controversial comment following the athlete’s sentencing to five years for the culpable homicide of Reeva Steenkamp on Tuesday
peopleComedian's quip about Reeva Steenkamp was less than well received at music magazine awards
News
Cumberbatch spectacularly photobombs U2 at the Oscars
news
Life and Style
Could you tell the difference between this and an organic alternative?
food + drink

Culinary experts in The Netherlands thought it was 'fresh' and 'tasty'

News
Will menus with calorie counts really deter junk-food addicts from eating junk?
i100
Sport
Today's Liverpool Echo back page
football
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
News
i100
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Arts and Entertainment
JK Rowling will not be releasing a 'romance' novel anytime soon
books
Life and Style
tech

Of all the computers Apple has ever made there’s only one that Steve Jobs had to sell his car to finance

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

    £350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

    Chief Financial Officer

    120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

    Day In a Page

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
    Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

    'Renée Zellweger's real crime was to age'

    The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
    From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

    Disney plans live-action remakes of animated classics

    From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
    Thousands of teenagers to visit battlefields of the First World War in new Government scheme

    Pupils to visit First World War battlefields

    A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
    The 10 best smartphone accessories

    Make the most of your mobile: 10 best smartphone accessories

    Try these add-ons for everything from secret charging to making sure you never lose your keys again
    Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

    Liverpool v Real Madrid

    Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
    West Indies tour of India: Hurricane set to sweep Windies into the shadows

    Hurricane set to sweep Windies into the shadows

    Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
    Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

    A new American serial killer?

    Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
    Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

    Sting to trap paedophiles may not carry weight in UK courts

    Computer image of ‘Sweetie’ represented entrapment, experts say
    Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

    Return to Fukushima – a land they will never call home again

    Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
    Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

    Wildlife Photographer of the Year

    Intimate image of resting lions claims top prize
    Online petitions: Sign here to change the world

    Want to change the world? Just sign here

    The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?