- Over-reliance on North American equities can compromise portfolio diversification and expose investors to heightened risks.
- Out of the 264 funds analysed, 165 received poor 1 or 2-star ratings, while only 42 funds earned top 4 or 5-star ratings over the past 1, 3, and 5 years.
- The Invesco EQQQ Nasdaq 100 ETF fund has consistently been among the top performers in the IA North America sector, with returns of 154.94% over the past 5 years.
- The Brown Advisory US Smaller Companies has consistently ranked among the worst performers within the IA North America Smaller Companies sector over the past 1, 3 & 5 years.
The North American equity sector remains one of the most prominent growth markets for investors. Since the market downturn in 2022, the sector has staged a remarkable recovery, delivering an average growth of 42.43% over the 23 months since the start of 2023. Such robust performance has cemented its popularity among UK investors, with the IA North America sector alone now accounting for nearly 8% of the £1.3 trillion invested across 56 different investment sectors.
However, not all funds within this sector have achieved strong returns. Our analysis of 264 funds classified within the IA North American and IA North American Smaller Companies sectors reveals significant performance disparities. While some funds consistently outperformed the sector average, others fell well below. In this report, we feature some the best and worst-performing funds over the past 1, 3, and 5 years, providing key insights into the sector’s performance.
Additionally, we address the growing concern that many investors are becoming overweight in North American equities, drawn by the sector’s strong growth, many of whom are unaware that such a strategy, while tempting, could leave their portfolios vulnerable in the event of a downturn
North American Equity Fund Performance Summary
We analysed 264 North American equity funds to assess their performance against their peers over the past 1, 3 & 5 years.
Our findings show that only 42 of the 264 funds earned top performing 4 or 5 star ratings - which reflects funds that consistently demonstrate an ability to outperform their sector peers.
How Yodelar Rates Fund Performance
In contrast, approximately 62.5% of funds underperformed, with 165 receiving a poor performing 1 or 2 star rating by consistently delivering returns that were below the sector average. This highlights the disparity in performance and overall quality between funds within these highly competitive sectors.
Top Performing North American Funds
The 5 funds below have consistently been among the top performing funds in the IA North American and IA North American Smaller Companies sectors over the 1, 3 & 5 years periods analysed. Each of these funds received a top 4 or 5 star rating based on how they ranked for performance compared to their sector peers.
Invesco EQQQ NASDAQ-100 UCITS ETF
The Invesco EQQQ NASDAQ-100 UCITS ETF, launched on 2 December 2002, has grown to become one of the largest funds in the sector with £9.9 billion in assets under management. The fund's objective is to deliver investment results that correspond to the price and yield performance of the NASDAQ-100 Notional Index (Net Total Return) in USD, before expenses. By tracking this index, the fund provides investors with access to the 100 largest non-financial companies listed on the NASDAQ Stock Exchange, capturing growth in key U.S. sectors such as technology and consumer goods.
The fund uses full physical replication to mirror the NASDAQ-100 Index, following a passive management strategy. This means it invests directly in the same stocks as the index, in the same proportions, ensuring close alignment with its performance.
The fund has consistently shown strong performance and over the past year, it achieved growth of 32.37%, surpassing the sector average of 27.69%. Its 3 year performance was 40.37% compared to the sector average of 28.36% and over 5 years, the fund generated a standout return of 154.94%, which was the 2nd highest of all other funds in the sector for the period. .
The fund's robust returns can be attributed to its focus on large-cap technology and growth-oriented companies, sectors that have experienced significant appreciation. Major holdings such as Apple Inc., Microsoft Corp., and NVIDIA Corp. have delivered substantial gains, contributing to the fund's overall performance.
JPM US Select Equity Plus
The JPM US Select Equity Plus Fund C Acc aims to achieve long-term capital growth by investing in U.S. companies through direct investments and the strategic use of derivatives.
The fund follows an active management strategy that combines in-depth fundamental research with quantitative analysis to select high-potential U.S. equities. Derivatives are also used to enhance performance and manage risks effectively, adding flexibility to respond to market shifts.
With £5.45 billion in assets under management, this 5 star rated fund has consistently outperformed its peers in recent years. Over the past 12 months, the fund returned 37.67%, beating the sector average of 27.69%. Over 3 years, it delivered cumulative growth of 52.89%, which was significantly above the sector average of 28.36%, and over 5 years the fund has returned growth of 136.20%, positioning it as one of the best-performing North American funds.
Its success is largely due to a diversified portfolio focused on high-growth sectors like technology and healthcare. Supported by an experienced management team with deep market insights, the fund has done well in capitalising on U.S. market trends.
New Capital US Growth Fund
The investment objective of the New Capital US Growth Fund is to provide capital appreciation by actively investing in high-quality U.S. mid and large-cap stocks. The fund focuses on companies that exhibit strong growth trends but are trading at relatively low valuations. This strategy allows the fund to capture growth potential while aiming to limit downside risk by choosing undervalued companies.
The fund’s approach has delivered remarkable results, with a 1, 3 & 5 year returns of 42.83%, 40.29% and 145.29% respectively. This sustained outperformance highlights the success of the fund’s strategic approach and careful stock selection, placing it among the top performers in the IA North American sector. With a strong emphasis on technology and consumer discretionary sectors, the fund has benefited from the consistent appreciation in these high-growth areas.
Quilter Investors US Equity Growth
The Quilter Investors US Equity Growth U2 Acc fund with approximately £489.65 million under its management, is designed to achieve capital growth by investing primarily in U.S. companies. It aims to outperform the MSCI USA IMI Growth Index, net of charges, over rolling 5 years.
The fund allocates at least 80% of its assets to shares of companies listed or based in the United States. While it can invest directly or indirectly through collective investment schemes or derivatives, the ACD generally expects it to hold investments directly.
Over the past 1, 3 & 5 years, the fund has delivered impressive returns of 34.14%, 34.86%, and 153.55%, respectively. In comparison, the North American sector averages for these periods were 27.69%, 28.36%, and 84.05%. These outstanding figures reflect the fund's ability to consistently outperform its peers.
CT American Smaller Companies (US) ZNA
Launched in 1997, the CT American Smaller Companies Fund (US) ZNA is a leading North American equity fund and currently manages a substantial £1.064 billion in assets.
Its goal is to achieve capital growth over the long term while seeking to outperform the Russell 2500 Index over rolling three years after fees are deducted. The fund actively invests at least 75% of its assets in smaller American companies, defined as those with market capitalisations between $500 million and $10 billion.
The fund's strategy focuses on selecting high-potential companies across various sectors, typically holding fewer than 80 stocks. It prioritises firms that adhere to good governance practices and excludes those involved in ethically contentious industries, such as tobacco and controversial weapons. Additionally, at least 50% of the portfolio is allocated to companies with strong ESG ratings.
Over the past 3 & 5 years, the fund has delivered returns of 19.14% and 94.44%, well above the sector averages of 5.93% and 61.45%, respectively. Over the past year, it returned 24.55%, slightly below the sector average of 24.71%, but still ranking within the top 50% of the IA North America Smaller Companies sector.
Worst Performing North American Funds
Not all of the funds have delivered strong results; some have faced challenges and failed to meet their sector benchmarks. As highlighted in our performance analysis, 165 North American equity funds have underperformed relative to their sector peers and received a poor performing 1 or 2 star rating.
Below we feature 5 of the worst performing funds over the periods analysed, each of which received a lowly 1 star rating.
Brown Advisory US Smaller Companies
The Brown Advisory US Smaller Companies B Acc fund, part of the North American Smaller Companies sector, has shown underwhelming performance over recent periods.
The fund manages approximately £513.62 million in assets and aims to achieve capital growth by investing primarily in U.S. equities. It focuses on small companies with above-average growth prospects that are listed or traded on U.S. markets and exchanges. At least 80% of its assets are allocated to U.S. small-cap companies with a market value of USD 6 billion or less at the time of purchase.
Despite its strategic approach, the fund has face challenges in recent years. Over the past year, it returned only 15.97%, well below the sector average of 24.71%, ranking it 28 out of 31 funds in its sector. Its 3-year performance was worse, with a loss of -3.70%, placing it near the bottom of the sector. Over five years, the fund achieved a return of only 42.43%, trailing the sector average of 61.45%. This performance places it among the worst-performing North American equity funds.
The fund struggled due to heightened market volatility, which often impacts small-cap stocks more severely, and sector-specific downturns that affected its concentrated holdings. Additionally, its bottom-up stock selection approach may have amplified these challenges, as underperformance in selected companies weighed on overall returns. Economic factors, like rising interest rates and slowdowns, further compounded difficulties for smaller companies.
Quilter Investors US Equity Small/Mid-Cap U2
The Quilter Investors US Equity Small/Mid-Cap Fund U2 is structured to achieve a combination of income and capital growth. Its goal is to outperform the MSCI USA Small-Cap Index, net of charges, over rolling five-year periods. The fund invests at least 80% of its assets in shares of companies listed or based in the United States.
The fund's strategy focuses on identifying high-quality small and mid-cap U.S. companies with strong growth potential. However, in recent years, it has underperformed relative to its benchmark and peers, ranking among the worst performers in the IA North America sector.
This £218.50 million fund has managed to return only 20.00% growth over the past year which was below the sector’s average of 27.69%. Over the recent 3 years, this fund returned 15.04%, which was again the worst in its sector. The 5-year performance was also poor, with a return of 48.76%, well below the sector average of 84.05%.
The small-cap sector has faced headwinds due to macroeconomic factors such as inflation concerns, rising interest rates, and overall market volatility. Additionally, concentrated investments in sectors like Industrials and Financial Services may have dragged on returns during periods of sector underperformance. Broader market conditions, combined with increased competition in the small/mid-cap space and uncertain economic outlooks, have further pressured the fund's performance.
abrdn American Equity Fund
The abrdn American Equity I Acc fund is focused on generating long term growth over 5 years by investing 70% in North American equities. It targets the return of the S&P 500 Index plus 3% annually over rolling 3 years before charges, though this is not guaranteed. The fund employs a bottom-up stock selection approach, focusing on identifying companies with strong growth prospects and solid fundamentals.
Although the fund follows a well-defined strategy, it has struggled to deliver competitive results in recent years. Over the past year, the fund returned 20.32%, falling short of the sector average of 27.69%. Its 3-year return stood at just 7.70%, significantly below the sector average of 28.36%. Similarly, the 5-year performance was lacklustre at 55.81%, compared to the sector average of 84.05%.
The fund’s underperformance can be attributed to challenges such as suboptimal stock selection, sector-specific headwinds, and overall market volatility. These issues underscore the difficulties of navigating economic uncertainties while maintaining a growth-focused investment approach.
Schroder US Mid Cap Fund
The Schroder US Mid Cap Z Acc fund is designed to deliver capital growth and income by investing at least 80% in medium-sized U.S. companies. These companies are typically within the bottom 40% by market capitalisation of the North American equity market at the time of purchase. It seeks to outperform the Russell 2500 Total Return Lagged (Net Total Return) index over 3 to 5 years, after fees.
This £915.68 million fund has delivered 5 year returns of 49.08%, which was considerably behind the sector average of 84.05%. The fund's heavy exposure to Technology has been a double-edged sword. While technology stocks have generally driven market gains, the fund's specific holdings may not have aligned with the sector's top-performing companies, resulting in subpar returns. Similarly, allocations to Industrials and Financial Services dampened returns during sector-specific downturns. The fund also faced challenges from mid-cap companies’ higher sensitivity to economic factors, such as rising interest rates and inflation, which further hindered its performance.
Fidelity American Fund
The Fidelity American W Acc fund manages £895 million in assets and has recently underperformed, ranking among the worst North American equity funds.
Its goal is to grow investors' capital over five years or more by investing at least 70% in equities of U.S. companies, including those listed on U.S. stock exchanges. The fund employs an actively managed approach, drawing on in-depth in-house research and investment expertise. It focuses on building a concentrated portfolio of 30-40 equities, carefully selecting U.S. companies with strong prospects for growth.
Over the past year, the fund returned 25.76%, slightly below the sector average of 27.69%. Its 3 year performance was more concerning, with a return of 15.50% compared to the sector average of 28.36%. The 5-year performance was similarly disappointing, delivering 59.56%, well behind the sector average of 84.05%, cementing its position among the lower performers in its category.
The fund's concentrated portfolio, while intended to enhance returns, has exposed it to heightened risks during periods of market volatility. Its underperformance is partly due to limited flexibility to overweight high-performing sectors because of diversification rules, along with weaker stock selection within these areas.
Over-Reliance on North America
North American equities, particularly in the U.S., have been a cornerstone of many investment portfolios due to their strong historical performance. However, this over-reliance carries substantial risks, particularly for UK investors heavily weighted toward the region. Concentrating too much on a single market leaves portfolios vulnerable to economic, political, and sector-specific challenges that could significantly impact returns.
While the U.S. has been a global economic leader, much of its market growth has been driven by a small group of technology giants, including Apple, Amazon, and Microsoft. This dependence on a few companies increases the vulnerability of North American equities to sector downturns. Investors heavily reliant on these equities risk significant losses if technology, a dominant sector in the U.S., faces challenges.
The U.S. market’s dominance is also accompanied by mounting economic concerns. As of 2024, the national debt has surpassed $35 trillion, growing at an alarming rate of $8.5 billion per day. This unsustainable debt burden could trigger higher interest rates, slowing economic growth and reducing corporate profitability. Analysts also warn of heightened risks of a U.S. market crash, citing historically high valuations, inflationary pressures, and geopolitical tensions as significant threats.
Furthermore, historical data underscores the need for caution. Since the DotCom bubble burst, the North America sector has ranked only 11th out of 20 main investment sectors for growth. While recent strong performance may attract investors, this long-term underperformance highlights the dangers of placing too much weight on a single region. Over-reliance on North America limits investors’ ability to capture opportunities in higher-growth regions such as Europe, Asia, or emerging markets.
Implications of a New Trump Presidency
The return of Donald Trump as U.S. President also introduces an additional layer of uncertainty for North American markets. Trump's proposed policies, including imposing tariffs of 10-20% on all imports and up to 60% on Chinese goods, could have profound economic consequences. Such tariffs would raise costs for U.S. companies that rely on imported raw materials and goods, squeezing profit margins and dampening economic growth.
The ripple effects of such policies would extend to global markets. Export-driven economies in Asia and Europe would face reduced demand from the U.S., triggering slowdowns in their equity markets. Emerging markets, many of which rely on both U.S. and Chinese trade, could suffer capital outflows as investors seek safer assets amidst heightened trade tensions.
Domestically, Trump's policies may exacerbate existing vulnerabilities in the U.S. economy. With national debt already at unsustainable levels, government fiscal flexibility could be severely limited. This might lead to prolonged recessions and further destabilisation of North American equity markets.
Trump’s presidency may bring short-term market gains, as evidenced by the "Trump bump" following his previous election. However, the long-term risks tied to debt-driven economic strategies and global trade disruptions cannot be overlooked.
The Value of Diversification: Adapting to Global Market Shifts
Investment markets naturally experience ups and downs, with different regions and industries gaining favour at various times. These shifts are often influenced by changing economic conditions, global trends, and evolving investor sentiment. While presidential policies can have an impact on market direction, the broader forces of the global economy ensure that no single region or sector dominates indefinitely. For instance, technology has driven substantial growth in recent years. However, at other times, sectors like energy, infrastructure, or healthcare have taken the lead due to innovation, demand, or changing circumstances.
Regardless of who is in the White House, markets will adapt, and growth opportunities will continue to emerge across regions and sectors. Historical performance shows that even during periods of political uncertainty, economies worldwide demonstrate resilience and innovation. Whether it’s rapid industrialisation in emerging markets, technological advancements, or growth driven by demographic trends, markets evolve in response to a complex range of factors that extend beyond political leadership.
This underscores the importance of a diversified approach to investing. By capturing opportunities across regions and sectors, investors can ensure their portfolios are well-positioned to benefit from growth wherever it arises.
A diversified portfolio spreads investments geographically, across industries, and across asset classes. This mitigates the risks associated with region-specific political or economic events. Furthermore, diversifying across multiple sectors provides stability, as downturns in one area are offset by gains in another. By adopting this approach, investors can build portfolios that are resilient and capable of weathering market fluctuations while still capturing long-term growth potential.
Many Investors Are Already Overexposed
Yodelar analyses thousands of investment portfolios each year through its free portfolio analysis service. Our findings have made it increasingly evident that there has been a significant rise in the number of investors (both advised and non-advised) who are disregarding risk management entirely. Instead, they are chasing recent growth sectors, such as North American equities and tech-focused funds, without implementing a proper asset allocation model in their portfolios.
Despite the risks outlined in this article, we have observed a growing trend of misinformed investors abandoning diversified asset allocation strategies in favour of chasing returns. Many are overloading their portfolios with North America-focused funds, which have performed well in recent years, while neglecting other sectors that may not have shown strong recent performance but are crucial for maintaining a balanced investment approach.
Whether intentional or not, over-concentration has become a widespread issue among UK investors. This trend is partly driven by advisers overly relying on funds with a North American bias, such as multi-asset or global equity funds. These funds are frequently heavily weighted towards North America, leading to a lack of genuine global diversification.
Summary
Our analysis of North American equity funds highlights the stark variability within the sector. While 42 funds earned top 4 or 5 star ratings, consistently delivering strong returns, the majority 62.5% underperformed, with 165 receiving low ratings. This underlines the inherent challenges of investing in this market and the associated risks of underperformance.
To optimise returns and mitigate risks, it is essential to focus on strategic fund selection and global diversification. Identifying and prioritising top-performing funds, regardless of the provider, can enhance portfolio resilience and safeguard against market volatility. A well-diversified investment approach is crucial for achieving long-term stability and capitalising on opportunities across different regions and sectors.
Improve Outcomes With Expert Advice from Yodelar
By diversifying across various sectors, regions, and asset classes, investors can create a level of insulation from these unpredictable shifts. Spreading investments beyond a single market can help smooth returns and balance risks, allowing portfolios to capture growth in multiple areas while remaining resilient to specific market shocks.
Given these complexities, professional investment advice becomes even more valuable. A skilled adviser can help investors navigate the intricacies of a Trump-led economic environment, recommending strategic adjustments that maintain balance and capture emerging opportunities.
At Yodelar, we have completed over 30,000 portfolio analysis and have witnessed first hand the proclivity for investors to shift the weighting of their portfolio towards asset classes that are currently performing well without the understanding that this will often unbalance their portfolio and increase risk.
Identifying the best performing funds within each asset class will also contribute to achieving optimal returns and safeguarding your financial future.
