Emma Wall: Hello and welcome to the Morningstar series, Ask the Expert. I am Emma Wall and here with me today is Caroline Gutman, Passive's Analyst for Morningstar.
Hello, Caroline.
Caroline Gutman: Hi, Emma. Thanks for having me.
Wall: Well, it's been week of bad economic figures; first, the U.K. having poor growth in the first three months of this year; and then it seems that U.S. has also had bad growth in the first three months of this year. Why the figures been so poor for the U.S.?
Gutman: You're right, I mean, the figures have been about, to your point, 2% growth for the first quarter, which was disappointing, economists had expected about 1% growth. A lot of that is attributed to poor weather in the first quarter as well as the strong dollar and also reduced exports. So, we've seen this downward trend also last year with first quarter.
Wall: I was just going to say, last year we had what was said to be a one-off catastrophic weather event, which actually sent the U.S. into recession for the first quarter that was supposed to be a one off, and here we are again with another weather event that's affected the economy?
Gutman: Yeah. But I think it's also important to remember that after that first quarter, we did see two quarters of growth – exceptional growth. So, I mean, there is a pattern there. But if we look at the longer term, the U.S. economy is actually doing incredibly well relative to other countries – other developing countries.
Wall: So, this isn't something to worry about this first quarter results?
Gutman: No. We tend to look at the longer term and say that, this is maybe not a one off, but it's just sort of a bump in the road for the U.S. as it was last year.
Wall: So, the economy, as you say, looks on sort of firm footing to continue to grow. What then about the stock market. Is it still attractive?
Gutman: Stock market is very attractive, especially for long-term investors and there are lot of great ways to access the U.S. stock market. Typically speaking it's very difficult for active managers to outperform large-cap benchmarks. So really the best way to access the U.S. market is through passive funds.
Wall: And that's because it's a wonderfully transparent market and so, value add is very difficult to do, whereas if you have a great part of strategy with a very small fee, actually you can take as much of the gains as possible from any rally?
Gutman: Absolutely, and I mean fund fees are as low as 0.1% and they continue to drop. So it's a very appealing way to access the market for investors.
Wall: And have you got some sort of highly rated ones, we can look at today?
Gutman: Absolutely, we actually have three index funds that I'll highlight. We have the BlackRock North American Equity Tracker; we have the L&G US Index Fund; and then also the Vanguard US Equity Fund and all three of those have received our coveted Gold rating and are great way to access that market.
Wall: And those are passive open-ended funds, aren't they, rather than ETFs?
Gutman: Exactly. Those are passive open-ended funds. So for investors who do prefer ETFs, for example, there is an entire array of funds – of ETFs available, the largest of which is the iShares Core S&P 500, which is traded on the LSE.
Wall: And that has a very low price, isn't it?
Gutman: That also has a very low price, yeah.
Wall: Caroline, thank you very much.
Gutman: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
