Earlier in the week, we delved into Morningstar Direct data to find out whether UK investors were still backing US equities a year on from the election of Donald Trump as President. The findings suggested they were.
This year is set to be the first since 2013 the Investment Association (IA) North American sector will see net inflows.
Drilling down further, we found tracker funds were seeing the most net inflows, while actively managed funds were seeing the most net outflows.
It’s hard for active managers to beat indices in the US as companies are extremely well-researched. Instead, investors are pushed towards trackers in order to chase what have been impressive gains.
Some fund managers do attempt to beat the index, though, and many think the opportunity to find value is better than ever, with most of the S&P’s gains coming from the tech behemoths.
Neil Dwane, global strategist at Allianz Global Investors, says that on a 10-year view the S&P 500 is priced to generate virtually no return. Though he says that, while the market looks pretty much fully valued, “as stock pickers we think we can still find a lot more opportunities”.
We took a look under the bonnet of a few Morningstar Gold and Silver rated funds in the IA North America sector to see which stocks they are backing using the Morningstar X-Ray tool. These include T. Rowe Price US Blue Chip Equity, JPM US Select Equity Plus, Dodge & Cox Worldwide Stock, Capital Group Investment Company of America and Old Mutual North American.
Top Blue-Chip Holdings
The results were somewhat unsurprising. The big tech names are all on the top seven holdings of the portfolio. Microsoft (MSFT) is held by all five, as is Google parent company Alphabet’s non-voting C shares (GOOG). Amazon (AMZN), Apple (AAPL), Facebook (FB) and Alphabet’s A shares (GOOGL) are all held by four of the five.
Two other companies are held by all five. UnitedHealth (UNH), which provides health plans for families, individuals and employers, is up around 40% since last November. Banking and insurance provider Wells Fargo (WFC) is up by a more modest 3.5% but is in a sector that is expected to outperform.
Other popular holdings are fellow financial Bank of America (BAC) and online hotel booking website Priceline (PCLN).
Favourite Smaller Companies
For those who prefer to look at smaller companies, where it can be argued stockpickers have more of an advantage, we also screened five funds in the IA North American Smaller Companies sector.
None of the 10 most-held companies were in more than three funds and no firm accounted for more than 1% of the portfolio as a whole.
Drug packaging maker West Pharmaceutical Services (WST) is held by Hemes US Smid Equity, Schroder US Smaller Companies and T. Price Rowe US Smaller Companies. It’s up almost a fifth since the election at $95.
WABCO Holdings (WBC), which makes components like brakes and suspensions for heavy duty commercial vehicles, and Arkansas-headquartered Bank of the Ozarks (OZRK) are both held by Threadneedle American Smaller Companies and the Hermes fund. The former is up 44% in the past year, but the latter has bounced about and is narrowly down.
Other popular holdings include medical devices specialist The Cooper Companies (COO), up 35%; reinsurer Reinsurance Group of America (RGA), up 23%; and credit checker TransUnion (TRU), up 75%.
