Scathing pessimists say that 65 months into a bull market rally, only a fool would up their exposure to US equities now. But historically, the average length of a bull market in US equities has been 108 months – using reliable data that runs back to 1926. If that is to play out in this instance, the S&P 500 will continue to climb until at least 2018.
According to Jupiter fund manager Robert Siddles this is the decade for US equities. The Eighties were about Japan, the Nineties all about Europe, the Noughties were the time to be in emerging markets – but now it is all about Uncle Sam.
“US smaller companies are the new emerging markets,” he says. “It is a high performance asset class which, if you can bear the volatility should be a permanent allocation in your portfolio.”
Siddles has a 27 year track record running US small and mid-sized companies, and has today launched an open end fund for Jupiter, to run alongside Jupiter Small Companies (JUS) so it is unsurprising that he feels positive about his own sector.
But the historic figures do back up his argument. If you had invested £1 in a series of asset classes it would be the US small caps holding that would be worth the most today - £215 compared to £118 UK small caps would return, and £25 an investment in gilts would be worth.
America may be far off the 10% GDP growth that propelled China forward in the Noughties, but looking around for alternative investment ideas soon reveals why the US is attractive.
“Fundamentals in the US are strong compared to other large economies,” Siddles said. “Other than South Korea there isn’t anywhere that seems compelling.”
Cheap oil and gas, the repatriation of manufacturing, readily available labour and a growing labour force all support economic growth and stock market returns.
“Unlike other developed countries such as China, Germany and Japan the US faces no demographic cliff,” said Siddles. “The US has a young population and – thanks to immigration – a fast growing labour force.”
Morningstar director of economic analysis Robert Johnson agrees that US equities have got a long way to go compared with historical recoveries.
“In some stock market periods the market has gone up as much as tenfold during a period of economic growth, and that's really great news,” he said. “Right now in this recovery, we're only at about three times the base level. So, I think we've got continued room to grow in the S&P 500 over time. It may not be month to month, but over the long term we still have more room for recovery.”
