Look beyond the FAANGs with LF Miton US Opportunities

However, some active funds that invest in the region are proving their worth and offering a level of diversification from the broader market. These include LF Miton US Opportunities (GB00B8278F56), which launched in 2013 and has served investors well with a strategy that differentiates it from mainstream US equity funds.

Rather than focusing on companies included in the S&P 500 index, its managers, Hugh Grieves and Nick Ford, look for holdings across the larger Russell 3000 index, meaning that the fund has less exposure to the leading names of the S&P 500 than some of its peers. For example, at the end of March just one of the 10 biggest constituents of the S&P 500 – Amazon (US:AMZN) – featured in the fund's largest holdings.

LF Miton US Opportunities is relatively concentrated, with 45 holdings at the end of March, and its composition is very different to that of the S&P 500 index and many other active US equity funds. Its 10 biggest holdings included Fidelity National Information Services (US:FIS), a provider of banking software, drinks company Keurig Dr Pepper (US:KDP) and UnitedHealth (US:UNH). Its biggest sector weightings were information technology, industrials, healthcare and consumer discretionary.

The fund's managers pay close attention to the fundamental merits of potential investments, and favour businesses that have a good level of return on cash invested. They also like them to have “sustainable franchises”, deep economic 'moats', ways to grow profits by fending off competition and the ability to profitably reinvest their proceeds. They will not pay what they consider to be a high price for quality, but rather wait for a company they like the look of to reach a valuation that looks attractive before they invest in it.

Because the fund can invest in companies of different sizes, rather than ones in just one index, its managers can put its assets into what they think may become market leaders in a variety of sectors. One of the fund’s longstanding holdings is Service Corporation International (US:SCI), the largest funeral homes operator in the US, which is well placed to benefit from a projected rise in death rates as the baby boomer generation reach the end of their lives. The fund's managers added to this position in April amid a coronavirus-related fall in its share price. Mr Grieves and Mr Ford have also recently added to housebuilder Pulte (US:PHM) on the grounds that its shares will be sensitive to any signs of an economic recovery.

LF Miton US Opportunities does not replicate the S&P 500 index so can lag both this index and more conventional US equity funds in times of rising markets. For example, in 2019 the fund slightly underperformed the S&P 500 and Investment Association (IA) North America sector average in sterling terms. However, a focus on winning companies with fundamental appeal means that it has still made decent returns and beats these benchmarks over longer cumulative periods. It also mitigates the fund's downside in times of volatility.

So, although this fund is not a source of conventional US equity exposure, it could be used to compliment and diversify an allocation to the region. And if you want steady returns in uncertain times and strong returns over the long term, LF Miton US Opportunities looks like a good option. Buy. DB