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Take a proactive approach to your US fund selection

Be very selective if you invest in active US equity funds
Take a proactive approach to your US fund selection
  • Now might be a good time to use active funds for your US market exposure
  • Some active funds do beat the market albeit with periods of underperformance along the way
  • One approach is to get exposure to large mainstream US equities via a passive fund and hold smaller companies or specialist funds alongside it

Active US equity funds, on average, struggled to beat the S&P 500 index for a number of years meaning that many investors have favoured passive US equity funds, at least for exposure to larger, mainstream companies. And with US equities generally moving in an upwards direction for many years this has been a profitable way to get exposure to them at a low cost. 

However, if and when US markets go in the other direction passive funds will feel the full effect of the falls, whereas active US equity funds with a selective set of holdings might not be hit as badly. Because of US equities’ good run and markets continuing to hit new highs there have been concerns that a correction is due. Although while US equity funds, on average, had failed to outperform the S&P 500, individual active funds have succeeded in doing this. And, more recently, active US equity funds, on average have been doing well, even as markets keep rising. For example, over one, three, five and 10 years to the end of August, the Investment Association (IA) North America fund sector average is ahead of the S&P 500 index in sterling total return terms.

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