Sports Calendar
Claim your free 2010 double sided wall chart
Navigation - link to other main sections from here
But a fall in the dollar only partly explains the poor return on US funds.
Mr Gilligan says: “The larger US stocks tend to be so well researched that there is little room for fund managers to squeeze out superior performance.”
Paul Ilott, of Bates Investment Services, an independent financial adviser, says the US funds that do perform well are often run by American nationals operating from the other side of the Atlantic, such as Bill Miller, at Legg Mason, and Gil Knight, at Gartmore.
He says: “They are better placed to understand the dynamics of the market.” Among the handful of successful managers of North American funds in the UK he picks Mike Brewis and Malcolm MacColl, at Baillie Gifford.
MAGNUS GRIMOND:
Don’t get the wind up
WE Brits are notoriously bad at investing in the US. In the 1990s, the City’s largest pension funds missed out on possibly the most profitable boom in history by virtually removing themselves from the world’s biggest stock market.
And we don’t seem to have learnt from our mistakes. At the beginning of the year, every man and his dog was confident that the dollar would fall in 2005.
In the event, the US currency has gained more than 6 per cent against the pound. Indeed, it has been the movement in foreign exchange rates that has provided virtually all the gains for anyone in a US tracker fund this year.
Just now, it is not easy to find a UK money manager, even of US shares, who is optimistic about our transatlantic neighbours. Chris Mills, the veteran overseer of the North Atlantic Smaller Companies investment trust, is one of those warning people off.
“Incomes are not rising, corporate profits as a proportion of GNP are the highest for many years and energy prices are rising. All this is putting a massive squeeze on people’s incomes.” And that was before Hurricane Katrina, he says. He believes that investors should hold off from the US market until at least the end of next year.
But Nick Ford, who recently joined Robert Siddles as co-manager of F&C’s US Smaller Companies investment trust, refuses to join this chorus of doom. “This gloominess has been the case ever since I started doing this in 1990,” he says. “I believe a significant number of financial institutions underweighted the US in the 1990s. Frankly, they have been gloomy and wrong.”
Mike Brewis, a co-manager of Baillie Gifford’s American open-ended investment company, is another who shrugs away concerns about the US economy. He accepts that higher interest and energy costs will hit the economy, while reconstruction spending after Katrina may delay moves to bring down the Government’s budget deficit.
But he adds: “In underlying terms, the economy is pretty good. It doesn’t matter too much if there’s a short-term slowing of the economy. One of the attractions of America for investors is that there is a good selection of well- managed growth stocks.” This view is echoed by Mr Ford. Short-term earnings numbers will be affected by Katrina and the oil price, he says, but there are plenty of companies that should remain resilient.
Two that he likes are SCP Pool, a leading distributor of swimming pool products, and LKQ, which sells recycled car parts. And for UK investors worried about the direction of the dollar, Simon Hayley, of Capital Economics, has good news: “We expect the dollar to carry on weakening against most other currencies, but against the pound we expect it to be flat over the next year.”
Currency risk must be borne in mind. However, if Mr Hayley is proved right, the outlook is fairly benign for investors in the US. Add in a decent fund manager and there should be money to be made.
For more investment articles visit www.timesonline.co.uk/invest
