Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
How to play the North American markets
Contrary to the stock market collapse predicted ahead of polling, Donald Trump’s election to the US Presidency has instead driven US equities to new highs in a ‘Trumpflation’ trade. The Dow Jones, S&P 500 and small cap Russell 2000 indices have all hit fresh highs.
Investors are hoping the implementation of pro-business tax and regulation policies, as well as increased infrastructure and defence spending, will be good for any number of companies in the US. The world’s largest economy remains a leader in technological and scientific advances.
According to data provided by the AIC, the top performing investment company sector in the year to date on a share price total return basis is the commodities space with a gain of 72%.
The second top performing sector is North America with a 34% rise. This ascent not only reflects high-flying US equity markets, given a further boost by the Trump rally, but also the post EU referendum weakness in sterling, which has driven investors into the arms of overseas focused trusts.
The AIC’s communications director Annabel Brodie-Smith explains: ‘Investment companies investing in the US have performed very strongly this year. The North American sector is the second best performing sector in the industry so far in 2016 up 34% and the North American Smaller Companies sector is up 20% in comparison to the average investment company, which is up 12%.
‘Investment company investors benefit from the closed-ended structure which allows managers to take a long-term view of their portfolios and they also have the freedom to gear which over the long-term as markets have risen has boosted returns.’
Brodie-Smith continues: ‘Investment companies also have income advantages and independent boards of directors to look after shareholder returns. After the unexpected Trump win, it appears that the American dream remains alive and well among investment company managers, with the US being the country most widely expected to outperform in 2017 and over the next five years.’
Plenty of choice for UK investors
As the table shows, many UK-listed investment trusts with exposure to North America have established strong long-term track records. They include JPMorgan American (JAM), up 224.18% on a 10 year share price total return basis.
Run by fantastically-named duo Garrett T. Fish and Eytan Shapiro, the trust has a remit to achieve capital growth through investments in North American companies of all sizes, with the top 10 flush with American behemoths such as Apple (AAPL:NDQ), Microsoft (MSFT:NDQ) and McDonald’s (MCD:NYSE).
Hot on its heels is JPMorgan US Smaller Companies (JUSC), which despite delivering a 204.63% decade-long haul, trades at a 5.9% discount that might entice value seekers.
Managers Don San Jose and Dan Percella invest in US tiddlers that boast a sustainable competitive advantage, trade at a discount to
their intrinsic value and are run by strong management teams.
Names that pass muster range from Toro (TTC:NYSE), a turf and snow maintenance equipment maker, to batteries, pet supplies and electric shavers firm Spectrum Brands (SPB:NYSE).
Trading at an even wider 12.1% discount is the Robert Siddles-managed Jupiter US Smaller Companies (JUS). It provides investors with exposure to home care and IT companies that can play a part in reducing America’s spiralling healthcare costs, plus access to other sectors.
For investors seeking to pep up portfolio returns through the wonders of dividend compounding, Aberdeen Asset Management-steered The North American Income Trust (NAIT) will appeal.
Trading at an 8.5% discount to net asset value, despite its near-30% five-year dividend growth track record, its managers Ralph Bassett and Fran Radano seek to provide investors with above average dividend income and long term capital growth through a book of S&P 500-quoted companies.
Radano recently characterised the quarterly dividend-paying portfolio as a ‘thoughtful balance of industry leading enduring global franchises married with a diversified group of cash generative growth companies’.
Key holdings include dependable dividend payers Dow Chemical (DOW:NYSE), Philip Morris (PM:NYSE) and Johnson & Johnson (JNJ:NYSE).
Select investment trusts within the AIC’s Global and Global Equity Income sectors also offer material exposure to North America.
They include the Tom Walker-steered Martin Currie Global Portfolio Trust (MNP), the venerable Witan Investment Trust (WTAN) as well as the Artemis-managed Mid Wynd International Investment Trust (MWY).
Another name is Baillie Gifford’s Scottish Mortgage (SMT), whose managers James Anderson and Tom Slater look for strong, well run businesses which offer the best potential durable growth opportunities for the future.
As the factsheet explains, ‘they think in terms of owning companies rather than renting shares and are first and foremost stock pickers, selecting investments based on an individual company’s fundamental characteristics.
‘A long term approach is taken, as the managers believe that it is only over periods of five years or longer that durable competitive advantages and managerial excellence within companies are truly reflected in returns.’
Scottish Mortgage is a significant investor in Amazon (AMZN:NDQ) – the trust’s top holding as at 31 October – as well as electric cars maker Tesla Motors (TSLA:NDQ) and social network Facebook (FB:NDQ).
DISCLAIMER: Daniel Coatsworth, who helped to edit this article, owns shares in Scottish Mortgage