3 US Investment Trusts for Your Portfolio

The American market is one in which active fund managers struggle to beat the S&P in any meaningful, consistent way. Our analysts highlight three for consideration

Jackie Beard, FCSI 5 December, 2013 | 11:00AM
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The number of investment trusts investing in North America is small, comprising just eight funds, four of which are dedicated to small-caps and another is focused on Canada only. Collectively they comprise nearly $3bn of assets.

The US market is one in which active fund managers struggle to beat the S&P in any meaningful, consistent way. In 2013 to the end of November, the average fund in the Morningstar US Large-Cap Blend Equity category is trailing the S&P 500 by nearly 75 basis points and only a third of funds in that category are ahead of that index. Extend that to the last five years and the index is ahead of the average fund by nearly 200 basis points annualised.

I spend much of my time extolling the virtues of the investment trust structure and the outperformance we see so often relative to open-end peers, but in this sector it’s something of a different story.

We’ve seen evolution among the US equity investment trusts as boards and managers adapt their funds to the prevailing environment. For example, the Edinburgh US Tracker investment trust was a fund that tracked the S&P 500, but since the financial crisis in 2008 in particular, it struggled to keep up with the index and the fee—albeit low—meant the fund didn’t quite keep up with peers or the index.

In 2012, the board of Edinburgh US Tracker and the investment manager, Aberdeen, decided to change the fund’s mandate. From July that year, the fund became actively managed, with an income bent, and it was renamed North American Income Trust (NAIT). The fees were increased but the move means shareholders now stand a chance of seeing gains that beat the index. As yet, that hasn’t happened, though—the fund is some eight percent behind the average category fund and nearly nine percent behind the S&P 500.

However, JPMorgan American Investment Trust (JAM) is something of a bright spot—it carries our Morningstar Analyst Rating of Bronze. Run by Garrett Fish since November 2002, the fund has held up very well among peers in both up and down markets over that time.  It’s true the fund hasn’t always outperformed the S&P 500 each calendar year, but under Fish’s tenure to date, he has added 50 basis points annualised relative to the index and more than 260 basis points annualised relative to his peers.  He also includes an element of small-caps here, managed by his colleagues on the Small-Cap team.

The third fund to mention is F&C US Smaller Companies (FSC). This hit the headlines recently when Robert Siddles resigned from F&C in late October. He will be joining Jupiter Asset Management in 2014 and the board of the fund has already announced its intention to retain his management services as his new firm; to that end they have served notice on F&C. Like Fish, Siddles has a track record that dates back to the early 2000s; he took charge of this fund in January 2001 and over that time he has outperformed his average US Small-Cap Equity category peer by more than three percentage points annualised. What’s more, he has beaten his index too—but in this case it’s the Russell 2000, not the S&P.

What does this tell us about the US market?  It’s often referred to as the most efficient stock market, and this helps to explain why it’s so hard to beat from a large-cap perspective. Further down the market-cap range, there are more opportunities, although Fish has shown it’s possible to add value in large caps. The gains are slim and the risks—and costs—are higher than at an ETF, but on a long-term view, there are active funds that have delivered.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Brown Advisory US Smaller Companies Ord1,345.00 GBX-0.37Rating
JPMorgan American Ord999.00 GBX-0.10Rating
North American Income Trust Ord306.00 GBX0.99Rating

About Author

Jackie Beard, FCSI

Jackie Beard, FCSI  is Director of Manager Research Services, Morningstar EMEA

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