The US market has been fairly difficult during the year, and fund returns have been considerably low...
The US market has been fairly difficult during the year, and fund returns have been considerably lower. This is true in two respects. Firstly, average returns in the equity US sector are only about a third of those the year earlier, while returns for funds investing in smaller companies is an even lower fraction. The other aspect to this is that the category has also underperformed many other core regions such as the UK and Europe.
Uncertainty in key factors such as increasing interest rates and oil prices, the political environment - particularly relating to Iraq and the US elections - combined with concerns about the extent and breadth of the market recovery have all affected the market.
In this environment, Standard & Poor's fund analysts noted that a value bias performed better than growth during this year. This has particularly been true since the end of June when growth underperformed by a wide margin.
Smaller companies funds have performed slightly better than funds investing in large caps, on average, though the differential between average returns has narrowed significantly this year. There is a significant overweighting of smaller companies funds in the table of best performing funds in the last year, with eight out of the top 10 funds being situated in the Smaller Companies US sector.
Many of the best performing funds during this year have also been remarkably consistent performers over the last few years, with many of the 10 top ranked funds achieving first or second quartile returns in each of the last five years (or as long as they have a track record for). This can be unusual, as it is sometimes the case that top performing funds one year become 'dogs' the next. However, given that market conditions in the last five years have been extremely changeable, a high level of relative performance consistency signifies managers that can cope with variable environmental factors, which is good news for investors.
One fund of note in the Smaller Companies US sector is the Schroder ISF US Smaller Companies fund, which is A-rated by Standard & Poor's. The fund gained over 21% during the year, compared to average sector returns of 8%, and it is ranked second in the sector. According to the Standard & Poor's ratings report, the manager chooses companies with sustainable business models that are well-priced relative to their growth potential. This is an approach that seems to have worked well.
The next best performing rated fund is the UBAM US Equity Value fund, which gained just under 21% during the period, and is the top-ranked fund in the equity US sector. This fund is highly value oriented, and the manager looks for companies with low P/Es that have strong balance sheets, quality management and catalysts to be able to release earnings potential. The ratings report also notes that the manager's incisive and focused stock picking style, which has resulted in excellent long-term performance, supports the recent increase of the rating to AAA.
£92bn transferred since 2015
Achievements, charity work and other happy snippets
Since first announcement