Over the course of the year we have tipped a number of passive and active US funds. The favoured option now among many advisers is a passive fund such as an exchange traded fund (see 'US Haven') because the US is such an efficient and mature market many active funds fail to beat it consistently.
However, you will generally find that whatever market you are in, if you do your research you should be able to find funds that can beat the market. Often when people say active funds fail to beat the market they refer to an average for one type of fund. But if you look at a performance chart of funds in one sector, there is usually a great divergence between the best and worst performers.
In view of that, we have looked back to see how some of our fund recommendations have done. Starting with large-caps, AXA Framlington American (read the tip) has beaten the S&P 500 over three years and six months, but Threadneedle American (read the tip) has not. Neither fund has beaten it over one year.
The short-term underperformance should be of less concern, however, as fund managers tend to invest for longer periods and many top performing funds over three and five years do less well over some shorter periods. If you invest in an equities fund your time horizon should also not be less than three years, and ideally five-plus.
Our tracker fund suggestion, meanwhile, L&G US Index, tracks very closely over a year - although the margin widens over three.
A longer-term horizon is very important if you are investing in more volatile smaller companies, and if you get the right manager the good things should come to those who wait. JPMorgan US Smaller Companies Investment Trust (read our tip) has beaten the index over one and three years, although not over longer periods. This can partly be explained by the fact that its managers, Glenn Gawronski and Don San Jose, did not start until 2008 and 2009, respectively, since when the trust's performance has improved.
See which shares have helped the trust
Threadneedle American Smaller Companies, an open-ended fund, has beaten the Russell 2000 over five years but not over one, three or 10 years. However, this fund is not benchmarked against a small-cap index, its reference is the S&P MidCap 400, and it has around 70 per cent of its assets in this area, with about a quarter in smaller companies. The fund's current managers, Cormac Weldon and Diane Sobin, have also not been in place for 10 years, only joining in 2005 and April this year, respectively.
Shorter-term periods are of less relevance with smaller companies in particular, because their stronger returns come over the long term, usually with considerable volatility along the way.
Large-cap funds vs S&P 500
| Fund/Index | 6 month return (%) | 1 year return (%) | 3 year return (%) |
|---|---|---|---|
| AXA Framlington American Growth Acc | 3.42 | 21.29 | 60.00 |
| L&G US Index R Acc | 2.89 | 21.01 | 43.44 |
| Threadneedle Amer Ret Net GBP Acc | 0.71 | 16.19 | 48.84 |
| S&P 500 TR | 3.31 | 21.45 | 49.35 |
Source: Morningstar as at 30 August 2012
Small-caps funds vs index
| Fund/index | 1 yr return (%) | 3 yr return (%) | 5 yr return (%) | 10 yr return (%) |
|---|---|---|---|---|
| Threadneedle Amer Sm Cos Ret Net Acc | 11.81 | 47.25 | 47.83 | 118.51 |
| JPMorgan US Smaller Companies IT (share price performance) | 22.83 | 61.4 | 19.01 | 120.93 |
| Russell 2000 TR USD | 16.25 | 51.56 | 39.54 | 130.58 |
Source: Morningstar as at 31 August 2012
