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6 Biggest and Best US Funds

Want exposure to US equities? Morningstar fund analyst Fatima Khizou reveals the most popular US equity funds by size and those that are the best performing

Fatima Khizou 23 March, 2017 | 8:00AM

4 Most Popular US Equity Funds

The largest funds in the sector are dominated by managers with a great deal of experience who focus on companies with the potential for durable growth.

The MFS Meridian US Value fund has a Morningstar Analyst Rating of Silver and has been managed by Steven Gorham since 2002. Gorham is an experienced investor who benefits from the support of co-manager Nevin Chitkara, appointed to the role in 2006. The managers have a large pool of experienced analysts at their disposal to carry out an investment process that is focused on identifying high-quality firms which exhibit sustainable and superior returns on equity and free cash flow. The managers like companies with solid balance sheets and durable franchises.

They take a long-term view with their holdings and often hold them for a decade or more as evidenced by the low turnover rate. The strategy has an excellent long-term track record since Gorham took charge here. The managers’ focus on downside protection has enabled the fund to hold up better in down markets than most of its peers but this means that it will not participate as much in rallies.

The Legg Mason ClearBridge US Aggressive Growth fund holds a Morningstar Analyst Rating of Silver and is managed by two highly experienced managers: Richard Freeman and Evan Bauman.  Freeman is amongst the industry’s longest-tenured managers and has been at the helm since 1983. The strategy invests in companies with high growth rates that the managers believe can be sustainable over the long-term.

They look for secular growth businesses with high barriers to entry, competitive advantages, innovation, low leverage and attractive valuations. They take a long-term approach when investing and pay very little attention to the index, so sector and stock weightings often differ from those of the benchmark. The approach leads to a high concentration in the top 10 holdings which tend to account for over 50% of the overall portfolio’s equity assets. Such an investment approach is not without risks but investors who share the managers’ long-term perspective have been well served.

The Silver rated Robeco BP US Large Cap Equities fund is managed by Mark Donovan and David Pyle, who boast over two decades of experience in US equity market. The duo is supported by a well-resourced, stable and experienced analyst team. They use a bottom-up approach which combines quantitative and qualitative analyses to identify companies/sectors where they believe catalysts for growth exist. The approach has resulted in concentration in some areas, namely technology, healthcare and financials which accounted for over 45% of the overall assets as the end of November 2016. The long-term results are solid, an outcome achieved with lower volatility.

The JPM US Value fund holds a Morningstar Analyst Rating of Bronze and has been run by Jonathan Simon since its 2000 inception. He is a seasoned investor and is supported on this offering by Lawrence Playford and Gloria Fu, who came on board in 2006. The manager aims to add value by investing in companies with high barriers to entry, low cyclicality, and management focused on increasing intrinsic value.

The strategy has a mid-cap bias and the portfolio has historically had an overweight to those names compare to peers. Financials and consumer cyclicals companies have been favoured over recent years and combined the sectors represent more than half of the holdings by assets, a stake well above most of its peers. The strategy has generated good results over the long-term.

2 Top Performing US Funds

Top performers over three years show that a disciplined and patient approach continues to pay off.

The Dodge & Cox Worldwide US Stock fund is amongst the strongest performers and has a Morningstar Analyst Rating of Gold. This fund benefits from one of the most experienced, stable and well-resourced team in the US equity space. The current eight-person investment policy committee that manages this strategy averages 23 years of tenure with the firm and includes current chairman and CIO Charles Pohl, director of research Brian Cameron, and director of international equity Diana Strandberg. They are supported by a deep pool of analysts and follow a disciplined value-oriented investment approach.

They favour businesses with good management, competitive advantages and good growth potential. These may also be businesses that are under a cloud at the time of purchase. They typically stick with their contrarian picks for years until they pay-off. The portfolio is built from the bottom up, with sector exposures often veering from market weightings. Technology, financials and healthcare sectors have dominated the portfolio for a number of years – more than 65% of equity assets at the end of 2016 – and the top ten picks have generally accounted for about a third of the assets.

Investing in controversial areas has led to lumpy performance at times, but the team’s patience and discipline has paid off as evidenced by the excellent long-term results. Investors who share the managers’ patience and long-term investment horizon have been well rewarded.

The Polen Focus U.S. Growth fund has been managed by Dan Davidowitz and Damon Ficklin since its launch in 2013 and the two have managed the US-sold version of this product since 2010. The duo aims to identify high quality companies with strong earnings potential, abundant free cash flow, low debt levels and high and sustainable returns on equity. Their analysis incorporates the assessment of industry dynamics, free cash flow, competitive advantages, and includes meetings with company management and stakeholders.

The managers will typically avoid cyclical and capital-intensive firms. The investment approach results in a very concentrated portfolio whose holdings are diversified across the growth spectrum to enable the strategy to perform in different market environments. The bulk of the portfolio is invested in secular growth firms trading at reasonable valuations, such as Alphabet, while the other growth buckets include stable firms with underappreciated growth such as Accenture, durable growth names for more uncertain times and firms with significant growth potential such as Celgene. The strategy has posted solid returns since its inception.

A version of this article appeared in International Adviser magazine

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.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Dodge & Cox Worldwide US Stock A EUR32.68 EUR-0.27
JPM US Value C (acc) USD32.15 USD-0.14
Legg Mason CB US Agrsv Gr A USD Acc206.20 USD0.72
MFS Meridian US Value W1 USD27.85 USD0.33
Polen Capital Focus US Gr A Retail22.44 USD0.13
Robeco BP US Large Cap Equities I $269.46 USD-0.12

About Author

Fatima Khizou  is an Investment Research Analyst for Morningstar

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