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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
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

    SThree: Talent Acquisition Consultant

    £22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

    Recruitment Genius: Experienced Financial Advisers and Paraplanners

    Negotiable: Recruitment Genius: This extremely successful and well-established...

    Guru Careers: FX Trader / Risk Manager

    Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

    Guru Careers: Investment Writer / Stock Picker

    Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...

    Day In a Page

    How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

    How to stop an asteroid hitting Earth

    Would people cooperate to face a global peril?
    Just one day to find €1.6bn: Greece edges nearer euro exit

    One day to find €1.6bn

    Greece is edging inexorably towards an exit from the euro
    New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

    'Iron Man' augmented reality technology could become reality

    Holographic projections would provide extra information on objects in a person's visual field in real time
    Sugary drinks 'are killing 184,000 adults around the world every year'

    Sugary drinks are killing 184,000 adults around the world every year

    The drinks that should be eliminated from people's diets
    Pride of Place: Historians map out untold LGBT histories of locations throughout UK

    Historians map out untold LGBT histories

    Public are being asked to help improve the map
    Lionel, Patti, Burt and The Who rock Glasto

    Lionel, Patti, Burt and The Who rock Glasto

    This was the year of 24-carat Golden Oldies
    Paris Fashion Week

    Paris Fashion Week

    Thom Browne's scarecrows offer a rare beacon in commercial offerings
    A year of the caliphate:

    Isis, a year of the caliphate

    Who can defeat the so-called 'Islamic State' – and how?
    Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

    Marks and Spencer

    Can a new team of designers put the spark back into the high-street brand?
    'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

    'We haven't invaded France'

    Italy's Prime Minister 'reclaims' Europe's highest peak
    Isis in Kobani: Why we ignore the worst of the massacres

    Why do we ignore the worst of the massacres?

    The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
    7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

    Remembering 7/7 ten years on

    Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
    Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

    They’re here to help

    We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
    Time to lay these myths about the Deep South to rest

    Time to lay these myths about the Deep South to rest

    'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
    What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

    What exactly does 'one' mean?

    Court of Appeal passes judgement on thorny mathematical issue