Ken Rayner, investment director at Rayner Spencer Mills, suggests the recent market volatility could provide a compelling buying opportunity in North America...
The US economy remains the most influential in the world, with most global equity markets correlated to it either directly or indirectly. This means that all investors need to be aware of what is happening in the American economy as well as their domestic markets.
We believe that when considering a global portfolio, a US fund should be at the forefront of an investor’s consideration; however, this does not make it an easy market in which to invest.
There are relatively few managers who consistently outperform the main market indices and it is for this reason that we include an index fund as one of our choices in the core options. In terms of the active managers, more than in other sectors, we concentrate on longer term performance numbers when selecting funds, as the market style rotation can deflect from the longer-term view of the manager.
Seven funds tipped to ride the North American wave
The sector has always proven to be one of the most difficult for active managers to provide consistent performance, particularly in an environment of quickly changing sentiment as has been evident over the last two years.
Markets have, however, stabilised in the past six months and moved gradually to new highs based on improving economic data and a rotation into risk assets. Although we have seen some recent increased volatility, the economic data – in particular on jobs and consumption – have all shown positive signs of growth.
More robust household balance sheets should underpin consumption in the US economy during the rest of the year.
The Federal Reserve is likely to welcome the combination of rising stocks and bond yields as a sign markets are optimistic that its policies are delivering a sustainable improvement in the US economy.
While it is unsurprising that concern over a slowdown in Fed policy should result in more volatile equity markets, the impact if the US economy is entering into a period of self-sustaining recovery may not be that protracted.
If the Fed ended quantitative easing (QE) due to a rise in inflation, without a pick-up in economic activity, markets would be right to be concerned. However, an end to QE because growth is going up should result in volatility being relatively short lived. Equity market setbacks provide a buying opportunity to investors.
The recent volatility in markets has occurred as investors are concerned about the pace and speed of an end to American QE. As long as this ends for the right reasons – a pick-up in economic activity – the prospects for equity markets over the medium term should remain positive.
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