Five ways to invest in US outside of traditional tracker funds

Many investors adopted a ‘keep calm and carry on approach’ during the tariff turmoil, with global and US strategies featuring heavily in April among our top 10 most-popular funds and exchange-traded funds (ETFs).

While stocks markets have experienced sharp falls during periods this year, US and global markets have pretty much recovered their poise. Year-to-date (as of start of this week, 19 May) the Dow Jones and the S&P 500 are now ahead (for local investors in US dollar terms) by 0.3% and 1.3%, while the Nasdaq has all but erased its former losses to stand down by 0.5% after a torrid few months.

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Some investors will have viewed those weak periods as an opportunity to take advantage of lower prices. Others may be concerned that stock markets are not yet out of the woods, particularly due to US president Donald Trump’s unpredictability.

However, it would be a bold call to bet against the US market over the long term due to its abundance of innovative and entrepreneurial businesses. Having a global index fund or ETF will provide plenty of exposure to the US, with the percentage weighting going up and down relative to how it performs versus other countries.

For those seeking specific exposure to the US, something to bear in mind is concentration risk, with the Magnificent Seven stocks accounting for a third of the S&P 500 index. As the weightings to the seven stocks rises, the performance of the index becomes more reliant on their fortunes. Most index funds and exchange-traded funds (ETFs) are market-cap weighted, which means the companies are weighted according to their total value relative to the index.

Owning a traditional S&P 500 tracker may well continue to serve investors well in the coming years, as it has done over the past decade, but for those looking to cast their nets wider or hedge their bets through seeking out complementary exposure, there are various alternative ways to play the US market. Below we highlight some of the options.

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Equal-weight ETFs

Those looking to reduce concentration risk could consider index funds and ETFs that track an equal-weighted index, which holds each company in equal proportion. For example, an equal-weighted FTSE 100 index would have a 1% weighting to each constituent.

One of the main benefits is that an equal-weighted ETF avoids being overexposed to stocks that have become overvalued or, worse still, potentially part of a bubble.

Another plus point to an equal-weighted index is that it offers more exposure to parts of the market that have performed less well in recent years. Going forward, if there are a broader set of winners in US markets then this approach will, in theory, capitalise on that more than the more traditional and common market-cap weighted indices.

Andrew Walsh, Head of ETF & Index Fund Sales UK & Ireland, at UBS Asset Management notes: “Even before the recent market volatility, a number of clients had indicated clear concerns about concentration risk in US equities due to strong ongoing performance by the Magnificent Seven. For example, looking at the S&P 500 index, at one point earlier this year, the ten largest stocks reached a record level of concentration at over 35% of the index’s value. Investor fears about a downturn in US tech giants can be allayed by using an equal weighted approach where the same amount is invested in each security regardless of the company’s size.”

Examples on interactive investor include Invesco S&P 500 Equal Weight ETF (LSE:SPEX), Xtrackers S&P 500 EW ETF (LSE:XDWE) and UBS S&P 500 Equal Weight SF ETF (LSE:S5EW).

Dividend strategies

Dividend-focused strategies may fit the bill for those looking for diversification alongside the growth-heavy S&P 500 index. Among the options is Vanguard FTSE All World High Dividend Yield ETF (LSE:VHYG). It owns companies with dividend yields that are higher than the global average. This means it buys cheaper shares than a classic global stocks tracker and yields far more, at 3%.

It holds a lot less in the US than a standard global tracker fund, with a 41% weighting. Its top three holdings are JPMorgan Chase & Co (NYSE:JPM), Exxon Mobil (NYSE:XOM) and Procter & Gamble (NYSE:PG). 

In terms of actively-managed US equity income fund options the three top performers over the past five years available to interactive investor customers are: BNY Mellon US Equity Income (up 109.7%), CT US Equity Income (81.7%) and FTF ClearBridge US Equity Income (80.3%). Over this time period, the average US equity fund (which includes both active funds and tracker funds) shows a gain of 82.1%.

Low volatility

There are ways to introduce more tactical exposure for those looking to lessen the impact of volatility. An ETF example that adopts a minimum volatility strategy, meaning it targets shares that are typically among the steadiest performers, is iShares Edge S&P 500 Minimum Volatility ETF (LSE:MVUS). There is also a global version, iShares Edge MSCI World Minimum Volatility ETF (LSE:MINV).

Alex Watts, Senior Investment Analyst, interactive investor, notes: “In addition to conventional defensive assets such as bonds, golds and healthcare stocks, investors looking to lessen the impact of volatility can consider minimum volatility strategies. Historically, low volatility stocks have shown higher average returns than high volatility stocks over time.”

iShares Edge S&P 500 Minimum Volatility ETF tracks the performance of an index composed of selected companies from S&P 500 that collectively exhibit lower volatility than the broad stock market. At the same time, the ETF maintains characteristics like sector and factor exposure that are similar to the S&P 500. 

It has three shares in common with the top 10 in the S&P 500 index: Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Berkshire Hathaway (NYSE:BRK.B). However, the percentage weightings are much lower, and the other seven stocks are different: Mondelez International (NASDAQ:MDLZ), Progressive Corp (NYSE:PGR), Chubb (NYSE:CB), Abbott Laboratories (NYSE:ABT), Marsh & McLennan Companies (NYSE:MMC), T-Mobile US (NASDAQ:TMUS) and Procter & Gamble (NYSE:PG).

Warren Buffett-style ETFs

Legendary investor Warren Buffett recently announced he will retire as chief executive of Berkshire Hathaway Inc Class B (NYSE:BRK.B) at the end of the year. Buffett’s investment principles and legacy will forever be etched in the history books.

A key part of his investment approach is to identify companies with a so-called moat. This refers to a business with a long-term sustainable competitive advantage, which protects its market share and profits from rivals. This could be a powerful product or brand with a loyal customer base, intangible assets, a patent on proprietary technology or the so-called ‘network’ effect, whereby goods and services become more valuable as more people use them.

In a nutshell, firms with wide moats are in control of their own destiny in being price-makers rather than price-takers.

As Buffett himself has described it: “What we’re trying to do is we’re trying to find a business with a wide and long-lasting moat around it, protecting a terrific economic castle with an honest lord in charge of the castle.”

For investors convinced of the case for economic moat companies one way to put it in to practice is via the VanEck Morningstar Global Wide Moat ETF (LSE:GOGB). This index is composed of US companies with strong moats and attractive valuations that meet sustainability criteria. It is composed of 63 stocks, and looks very different to the wider US market, with its three biggest positions: Veeva Systems (NYSE:VEEV), the global leading supplier of cloud-based software solutions for the life sciences industry; US-based restaurant operator Yum Brands (NYSE:YUM); and Allegion (NYSE:ALLE), the security specialist.

There is also a global version – VanEck Morningstar Global Wide Moat ETF (LSE:GOGB).

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Smaller companies

For investors prepared to take on greater levels of risk, the US offers plenty of exposure to innovative and fast-growing small companies. This part of the market was hardest hit by tariff turmoil that caused the US stock market to fall sharply from mid-February to early April. Investing in smaller companies can offer greater rewards compared with larger firms, but also carries greater risk. When there’s a downturn, smaller shares tend to fall further, and so it proved this time around.

For investors sizing up this area of the market, valuations have become cheaper. Moreover, Trump’s plans to support US businesses, such as through a reduced corporate tax rate for domestic producers, could turn into a tailwind. 

Among the options our analysts are fans of is Artemis US Smaller Companies, while an option that has some exposure to medium-sized business is Neuberger Berman US Multi-Cap Opportunities fund. Both are members of interactive investor’s Super 60 list.  

Beware of currency risk….

As we recently reported, when owning assets that are priced in a foreign currency, if the value of the other currency falls versus pounds sterling, that means the value of your investment in pounds falls. For example, over the past three months (to 19 May) the S&P 500 index is down -4% in sterling terms, but in US dollar terms is up 1.6%.

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However, while the effect of this has been negative for UK investors so far in 2025, there will be times when the reverse is true. Moreover, for investors looking to buy US stocks, your UK pounds now go further than before.

For fund investors wanting to mitigate currency risk, some overseas funds come in special versions that strip out changes in the exchange rate. These versions, called “hedged share classes”, have identical holdings and the same fund manager. The difference is the currency hedging means that UK investors will see the same percentage rise in their funds as local investors, with no reduction or benefit from currency swings.