Five funds making the most of their independence
4 July 2018 marked the 242nd anniversary of the USA’s adoption of the Declaration of...
On Wednesday this week, the S&P 500 share index, which tracks the 500 largest listed companies in America, marked its longest ever ‘bull market’ – a period of time when stock prices are rising.
Having bottomed at a low of 666 points (an ominous number if ever there was one) on 6 March 2009, right in the midst of the global financial crisis, the US stock market has continued to climb steadily. It has gone some 3,455 days without a fall of 20% or more (the statistic which signals a change to a bear market, or period of time when stock prices are falling).
Today* the S&P 500 stands at 2,861 – just shy of the all-time high of 2,873 it hit in January this year, meaning that investors in the S&P 500 have quadrupled their investment during this time.
The previous record was set in the bull market that ended with the technology boom and bust at the turn of the millennium.
Much of the latest gains in the US stock market have also been driven by technology stocks. So is history about to repeat itself or will this bull market continue?
Commenting on the outlook for US equities, Darius McDermott, managing director of FundCalibre, said: “Company earnings remain largely positive. Indeed, forecasts suggest we could have just had one of the strongest quarterly earnings seasons in the past decade.
“The economy is also in good shape. The central bank is raising interest rates carefully at the moment and businesses have enjoyed a recent tax cut.
“However, I remain cautious. A good proportion of the recent rise in the S&P 500 has been down to the stellar performance of technology stocks (which account for some 13%** of the stock market) – a trend we have seen globally. Not all sectors are doing so well. And while earnings are strong, stock price valuations are extremely high.
“President Trump’s protectionist policies could also do more harm than good if trade disputes turn into a full-blown trade war.
“In the very short term, I think markets could continue to rise: Trump has linked the stock market success to his leadership, so is unlikely to do anything that may harm it before the mid-term elections in November. But I believe we are in the later stages of the cycle and careful stock selection will be key to returns going forward.”
AXA Framlington American Growth – a fund that targets market leading companies with unique brands, intellectual property and innovation at their core. It currently has around
three quarters invested in America’s largest companies and a quarter in medium-sized businesses.
Brown Advisory US Flexible Equity – roughly half of this fund is currently invested in larger companies and the other half in medium-sized ones. The managers use a flexible strategy and mainly look for undervalued improving businesses with decent growth prospects.
Hermes US SMID Equity – in contrast to the two funds above, this one invests in small and medium-sized business. The managers look for quality companies with minimal debt, in industries with barriers to entry, or which provide products or services that cannot be easily replicated by competitors.
Lazard US Equity Concentrated – this fund typically holds no more than 20 to 25 companies, ranging in size from the fairly small all the way through to the very large. It is genuinely different and one of the more interesting funds in the sector.
Schroder US Mid Cap – lastly, and as the name suggests, this fund invests mainly in medium-sized companies although it does also invest in smaller ones when there are good opportunities. The split is currently 86% and 14% respectively.
*Market close, 22 August 2018
**Source: Slickcharts, as of 25 July 2018.
***fund fact sheets, July 2018