Investors have piled cash into US equity funds and exchange traded funds (ETFs) to the tune of £8.5 billion since Donald Trump was elected as president a year ago, according to data from Morningstar Direct.
The inflows are impressive, despite a lack of meaningful action from the political regime so far and a growing concern over whether Trump’s business-friendly pre-election promises will materialise. But the prevalence of tracker funds high up the best-buy list suggests investors are keen to catch the end of the rampant bull market that has climbed steadily since 2009.
Since 2009, the S&P 500 is up more than 300%, and the rally sees no sign of slowing just yet. The S&P 500 is up almost 20% in the past year and more than 15% year-to-date, with the NASDAQ up nearly 30% in the past year and 25% year-to-date. They have both been driven in the main by the tech behemoths Facebook (FB), Amazon (AMZN) and Google parent company Alphabet (GOOGL).
The data show 2017 is set to be the first year of net inflows into funds in the Investment Association North America sector since 2013, after three years of net outflows totalling £2.2 billion.
What are Investors Buying?
Over the past year, six of the 10 funds with the most inflows among UK investors were passive; the 10 with the most outflows are exclusively active. The ACS US Equity Tracker, Vanguard US Equity Index and HSBC American Index at the top of the inflows list. The highest active fund was Artemis US Extended Alpha. The Vanguard fund is rated Gold by Morningstar analysts.
Almost €8 billion (£7 billion) has been pumped into European-domiciled US large-cap equity ETFs, meanwhile. Demand for US ETFs peaked in the fourth quarter of 2016, immediately after the election, at €4 billion but has slipped back in subsequent quarters.
iShares Core S&P 500 ETF saw the most inflows at €2.5 billion, with Lyxor S&P 500 ETF and DBXT MSCI USA ETF following with €1.6 billion and €1.1 billion respectively.
Plenty was promised on the election trail, including repealing Obamacare, tax cuts and a $1 trillion infrastructure package. What’s actually happened 12 months on, asks Hartwig Kos, chief investment officer at SYZ Asset Management? “Obamacare is still in place and the debate about tax reform has barely begun. It has also gone awfully quiet on the matter of making US infrastructure ‘second to none’.”
But tax reform is back on the agenda. Trump had made noises about cutting the US corporation tax from 35%, one of the highest rates globally, to 20%. It’s likely to be the first real piece of legislation enacted, though Nadia Grant, head of US equities at Columbia Threadneedle, still reckons the odds are just over 50%.
However, with the mid-term elections now a year away it’s becoming a bigger issue. “There are a lot of people in congress trying to make it happen so they can get elected,” says Walter Price, manager of the Allianz Technology Trust (ATT). “That’s a strong incentive to make things happen.”
