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Watch for hidden US exposure

Watch out for hidden exposures in your portfolio
Watch for hidden US exposure
  • Dedicated US equities funds are not the only ones with holdings in this asset
  • Global equities funds in particular can have large allocations to them
  • UK equity income funds also hold US stocks

If you invest in funds it's harder to know what your exact exposures are because a significant allocation or bias to a particular area might not be obvious from their names and categories. Holdings in US equities, for example, turn up in far more places than just dedicated US equity funds.

Passive global funds and exchange traded funds (ETFs) that track broad global equity indices have substantial exposure to US equities because these account for large parts of them. For example, two-thirds of MSCI World index was composed of US equities at the end of November.

Many active global equities funds also have substantial allocations to this market because of the depth of opportunities it offers. Rathbone Global Opportunities (GB00BH0P2M97) had 64.68 per cent and Fundsmith Equity (GB00B41YBW71) had 67.9 per cent of its assets in the US at the end of November. Scottish Mortgage Investment Trust (SMT) had 52.1 per cent of its assets in the US at the end of September.

Even global funds that take a more value or contrarian approach, and typically have less in North America than broad indices, still have a significant allocation to this area. JOHCM Global Opportunities (GB00BJ5JMC04) had 38.2 per cent and Jupiter Global Value Equity (GB00BF5DRJ63) had 16 per cent of its assets in North America at the end of November.

Technology, healthcare and biotechnology funds often have the majority of their assets in the US because that is where many of these types of companies are listed. For example, Allianz Technology Trust (ATT) had 90.5 per cent of its assets in North America at the end of October and Polar Capital Technology Trust (PCT) had 70.5 in this area at the end of November.

Worldwide Healthcare Trust (WWH), meanwhile, had 68.6 per cent and International Biotechnology Trust (IBT) had 93 per cent of its assets in North America at the end of November.

An area you might least expect North America exposure is UK equity income funds. But UK open-ended funds can invest up to 20 per cent of their assets in non UK equities, and UK equity income investment trusts may also hold overseas stocks. While their allocations to North America are not large, they may hold some of the same stocks as your other funds perhaps giving you more exposure to certain US-listed companies than you want.

As an example, TB Evenlode Income (GB00BD0B7D55) had 13.6 per cent of its assets in the US at the end of November, and its 20 largest holdings included Procter & Gamble (US:PG), Cisco Systems (US:CSCO), PepsiCo (US:PEP), Intel (US:INTC) and IBM (US:IBM).

City of London Investment Trust, (CTY), meanwhile, held Coca-Cola (US:KO), Johnson & Johnson (US:JNJ), Merck (US:MRK), Microsoft (US:MSFT) and Verizon Communications (US:VZ) at the end of October.

These stocks might also be held by global, US or technology equities funds.

Some private equity investment trusts have significant exposure to North America, although they invest in unquoted companies rather than the listed North American companies your equity funds invest in. But they can still can expose you to the economic and sectoral trends of this region.

Pantheon International (PIN) had 50 per cent of its assets and HarbourVest Global Private Equity (HVPE) had 60 per cent of its assets in the US at the end of August and October, respectively.

This is not an argument against investing in US, but rather to highlight how important it is to know what your funds hold, and not to have more exposure than you intend to any market or asset. Unintended overexposure to a given area could change the risk and investment profile of your portfolio in a way that results in a level of risk and volatility, and return profile, that you do not want. Technology stocks, for example, can be highly volatile.

So before adding a fund consider how much exposure you already have to what it invests in, and if you need more.