US Fund Buy Tips for an Equities Market Correction
Goldman Sachs yesterday followed on from Bank of America Merrill Lynch in forecasting a significant stock markets correction at some point over the next few months. Merrill Lynch went as far as to say it happening in the next weeks is “high probability”. While neither of the major Wall Street investment banks believes a correction will turn into a prolonged bear market as the world economy is currently too strong, they both predict a correction could be “sharp” and “painful”. The good news is that the banks’ analysts are looking at a short term correction as a buying opportunity rather than a moment to revert holdings into cash. Nonetheless, those investing online in SIPPs and ISAs will be wondering if they shouldn’t be logging onto their online stockbrokers for a little housekeeping to fortify against a downturn.
While tracker funds such as ETFs are a strong choice in a bull market, well-managed funds can prove to be more resilient in a downturn. Investors might want to start considering funds under the control of managers with a particularly strong record of out-performance when markets are falling. Because the US stock market is so heavily analysed, it is generally the most difficult for actively managed funds to outperform in when markets are rising. Potential positives are generally already priced in to valuations.
However, there are some actively managed funds that have consistently outperformed indices. They are few and far between but research conducted by The Telegraph shows that Baillie Gifford American, Threadneedle American and Legg Mason ClearBridge US Large Cap Growth have returned more than the S&P 500 over 1, 3, 5, 10 and 15 years. These 3 funds have delivered net, minus fees, returns of 463%, 410% and 397% respectively over 15 years, with the S&P 500 has returned 367% over the same period.
If the time period is reduced to 10 years, The Telegraph highlights another four funds that have consistently outperformed the benchmark US equities index. They are the T. Rowe Price US Blue Chip Equity, T.Rowe Price US Large Cap Growth Equity, Morgan Stanley US Advantage and Seilern Stryx America.
All or most of these fund picks are available via the major UK online stock brokers. The secret of these funds has been a large weighting towards high-growth technology stocks such as Apple, Amazon, Facebook and Alphabet. This means that a downturn for this sector is the major risk inherent in the funds mentioned but most analysts are still bullish on the big tech stocks’ potential for further growth as they open up new revenue verticals. Amazon, for example, is pushing heavily into cloud storage and media, through its Amazon Prime streaming service, which is a rival of Netflix, another US tech company that has been delivering stellar returns.
Online stock broker AJ Bell’s head of fund selection Ryan Hughes, however, believes another US-focused fund than those on The Telegraph’s list may be the best bet now, tipping Artemis US Select fund. It’s now being run by the team behind the Threadneedle America fund that has been the most consistent performer on the market over 15 years. They moved to Artemis three years ago and are, in Hughes’ opinion “the best US focused team in the UK”.
For investors who are concerned a correction might also have as significant an impact on the share price of the big tech companies as the rest of the stock market, a more conservative option suggested by Mr Hughes is the JP Morgan US Equity Income fund. As it has an obligation to pay out dividends, this fund largely avoids growth companies such as the tech giants in favour of value companies in sectors such as finance, health and energy. Rising interest rates are expected to benefit the finance sector this year and the health and energy sectors tend to prove among the most resilient during stock market downturns.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.