While the core of Hughes’
US exposure is to a passive
product, he notes there
are still some pockets
of excellence in active
management, which is why
he holds Dodge & Cox US
Stock. He adds that while
Dodge & Cox is not well
FE TRUSTNET
known in the UK, it is an old
and well-established US
manager. “This is a large
cap strategy, but with a
value bias as this is a style
we want exposure to,” he
explains. “The manager is
very long term, essentially
being a bottom-up research
house that looks for well-
established businesses that
can deliver earnings growth
and cashflow.”
The perfect blend:
Merian North American
Equity
Ben Yearsley says the blend
of styles is key to this Merian
(formerly Old Mutual Global
Investors) fund, which is
run by Ian Heslop. “Heslop
arguments to be buying small
caps, but overall we don’t think the
investment case is currently made
for us to re-enter the US small-cap
space – especially at this point in
the cycle.”
PERFORMANCE OF FUND VS INDEX OVER 10YRS
Merian - North American Equity (366.82%)
S&P 500 (296.83%)
400%
350%
300%
250%
200%
150%
100%
50%
0%
-50%
almost every manager and across
asset classes the same concerns
around the ability to trade in a market
downturn/sell off. Yet while many
managers have this fear, investors
seem to be ignoring it.”
For Metcalfe, one of the main
problems is it has become “almost
impossible” to accurately model
liquidity risk, as the bull run has been
accompanied by exponential growth
in passives – meaning there has been
no “rush for the door”.
“There are no guarantees liquidity
issues will be restricted to small caps,
but any issues will likely be worse for
them,” he says. “Alongside these fears
is the relative valuation argument and
small caps look expensive relative to
large cap peers and historically.”
“We accept Trump’s tax cut and
attempts to reduce red tape are
“We hear from almost
every manager and across
asset classes the same
concerns surround the
ability to trade in a market
downturn/sell off”
Looking down
Turning to small caps, Chris Metcalfe,
investment director at IBOSS, notes IA
North American Smaller Companies
has made 1,100 per cent over the past
25 years, almost double the 640 per
cent made by IA North America.
The small cap sector has
outperformed in 18 out of the 25
calendar year periods, which Metcalfe
says has been heavily influenced
by the performance of tech stocks,
which make up approximately 20 per
cent of the US sector. However, it is
not all plain sailing in this area.
“One of the main risks we see in
the US small cap space is liquidity,”
Metcalfe continues. “We hear from
The value option:
Dodge & Cox US Stock
[ SECTOR PROFILE ]
38 / 39
In focus
Source: FE Analytics
believes that the biggest risk
comes from having too much
style bias within a portfolio
and that by having a blend
you help reduce downside
risk,” he explains. “This fund is
much more quant orientated,
with five components to the
process including company
management and analyst
sentiment. Stock bets are
limited to +/- 1 per cent and
the portfolio is clearly large-
and mid-cap focused.”
The passive pick:
Fidelity Index US
AJ Bell uses the Vanguard
S&P 500 ETF in its passive
MPS, but the £1.4bn Fidelity
Index US fund in its active
one. “The fund is very low
cost with a strong record
of tracking the index,” says
Hughes. “Fidelity works on a
full replication basis, which
is what we prefer to see
from our passive solutions.
We are broadly agnostic on
fund structure and in this
case, there is little to choose
between Fidelity’s fund
structure versus an ETF.”
trustnet.com