Analysts show faith in US recovery

FEARS of tax increases in the US may have depressed the Dow Jones index, but analysts are still backing two new investment trusts specialising in US equities, writes Neasa MacErlean.

Foreign & Colonial's new US Smaller Companies trust and River & Mercantile's American MidCap Trust are both being recommended by stockbroker Gerrard Vivian Gray.

The Dow Jones Industrial Average fell by 70 points on the week in response to President Bill Clinton's talk of tax rises.

Gerrard Vivian Gray strikes a note of caution, however: 'The US market is fairly fully valued and vulnerable to unexpected policy changes from the new administration.

'On a longer-term view the US dollar still looks undervalued and a strengthening dollar should enhance returns for UK-based investors. The arguments put forward by both (investment trusts) in favour of small and medium-sized companies - the areas in which they intend to invest - are sound and one would expect to see these companies benefit from the recovering US economy.'

Foreign & Colonial's new trust will be run in tandem with its US smaller companies unit trust, which headed Micropal's five-year best performance tables at the end of 1992, with 'a relatively conservative investment policy'.