Don't underestimate your US exposure

The Association of Investment Companies (AIC) has recently analysed investment trusts in its Global and Global Equity Income sectors and found that they have an average of 36 and 22 per cent exposure to North America, respectively. Of these, the investment trust with the highest allocation to the US is Martin Currie Global Portfolio Trust (MNP), which has 59 per cent of its assets in the US.

Other investment trusts with high US allocations include Securities Trust of Scotland (STS) with 56 per cent, Mid Wynd International Investment Trust (MWY) with 49 per cent and Scottish Mortgage Investment Trust (SMT) with 48 per cent.

But although markets are likely to be choppy in the next few days, investors shouldn't panic.

Iain Scouller, managing director of investment funds research at Stifel, said: "There will no doubt be the usual siren voices sounding off about Armageddon scenarios. However, we think that fairly quickly stock markets will focus back on corporate earnings rather than politics. While there is limited visibility on the policies of a Trump presidency, the proposals to cut some corporate taxation and personal taxes may be received positively by stock markets. US interest rates are probably also likely to remain lower for longer, with exceptionally loose monetary policy continuing."

Many Global and Global Equity Income sector investment trusts have high exposure to the US because of the index they compare their performance against.

"Global funds are typically benchmarked against the MSCI World Index, of which the US accounts for 59 per cent, so if you're in a global fund and it's heavily aligned to the index in terms of its market exposure, then you are actually predominantly in a US equity fund," explained Jason Hollands, managing director at Tilney Bestinvest.

However, despite matching the MSCI World Index with its weighting to the US, Tom Walker, manager of Martin Currie Global Portfolio Trust, said stock picking remains important.

"The US economy has probably the best growth outlook of developed countries for the next few years but it is also quite a mature market and highly competitive," he said. "Many US companies are among the best quality in their sectors in the world - particularly in the technology sector. However, for every company we assess, we look at its geographic earnings profile not at its country of quotation."

Mark Whitehead, portfolio manager at Securities Trust of Scotland, said the case for high exposure to the US remains compelling.

"US companies have been more proactive in the aftermath of the global financial crisis in restructuring their operations than companies in other regions, which has enabled them to invest more in growth," he said. "In addition, the macroeconomic conditions in the US look to be improving more than elsewhere as the Federal Reserve appears to have been successful in its stimulus programme which was started earlier and in greater size than by other central banks."

James Henderson, manager of Law Debenture Corporation (LWDB), said his low allocation to the US was more of a vote in favour of other geographies - notably the UK.

"The UK market offers higher dividend yields than other major markets and the dividends from the UK market are expected to grow substantially above inflation over the coming year," he explained.

Global and Global Equity Income sector trusts' US exposure

Source: The AIC