Interactive Investor

The new US fund that spices up our growth exposure

19th June 2023 12:30

by Douglas Chadwick from ii contributor

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Saltydog Investor has bought into a US fund, which is a top performer over multiple short-term timeframes.

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This content is provided by Saltydog Investor. It is a third-party supplier and not part of interactive investor. It is provided for information only and does not constitute a personal recommendation.

Following the resolution of the debt ceiling deadlock at the end of last month, the main American stock market indices have resumed their upward trajectory, building on gains made earlier in the year.

While the expression "When America sneezes, the world catches a cold" is commonly used to describe the negative impact of US economic downturns on the global economy, I am not aware of one suggesting that when America does well, so does the rest of the world.

Nevertheless, it is widely recognized that a strong US economy can have positive effects on other countries and the global economy as a whole.

The United States is the largest economy in the world and has significant influence in global trade, investment, and financial markets. When the US economy is performing well, it tends to generate increased consumer demand, higher investor confidence, and greater business opportunities. The US dollar is also the world's primary reserve currency, and its strength or weakness can have implications for other currencies and overall financial stability.

Last year the US stock markets struggled when compared to the rest of the world. The Dow Jones Industrial Average went down by 8.8%, obviously not great but not a disaster. However, the S&P 500, which includes 500 of the largest publicly traded companies in the US and is often regarded as a benchmark for the overall performance of the US economy, fared much worse, losing 19%. The more technology focused Nasdaq lost 33%.

Inflation had been steadily rising since May 2020. Initially, the Consumer Price Index was showing a 12-month increase of just 0.1%, but by June 2022 had climbed to 9.1%. To curb inflation, the Federal Reserve began raising interest rates in March 2022, marking the first increase since 2018. This upward trend in interest rates continued until very recently. After their latest meeting they announced that interest rates would remain unchanged for the first time in 15 months, and after 10 consecutive rate rises.

The first few interest rate rises did not seem to have much of an effect on inflation, which continued to go up, but that changed around a year ago. Since last June the inflation rate has dropped from 9.1% to 4.0%. Still above the 2.0% target, but definitely heading in the right direction.

The US stock market started to recover in the final quarter of last year and had a good start to this year. In January the S&P 500 gained 6.2% and the Nasdaq rose by 10.7%. They have continued to rise, but it has not been plain sailing. There was a mini-banking crisis earlier in the year, when a few US banks went bust, which caused a temporary correction in the markets, and more recently we have witnessed another debt ceiling showdown.

However, a deal has now been agreed allowing the current government to borrow money until after the next presidential election in November 2024. That, along with the pause in interest rate hikes, seems to have bolstered market sentiment.

Since the end of May, the Dow Jones Industrial Average has gone up by 4.2%, the S&P 500 has made 5.5%, and the Nasdaq has beaten both of them, gaining 5.8%.

Last Wednesday (14 June), when we reviewed our latest fund analysis, the best-performing sector over the previous four weeks was Technology and Technology Innovations. Next was our combined North America and North American Smaller Companies sector.

The week before we had invested in the L&G Global Technology Index fund, and it is already up 3.4%. Last week we invested in the UBS US Growth fund, which featured in our 26-week data table.

North America fund sector performance June 2023.

We liked the look of the New Capital US Growth fund, but it is quite a small fund. It was then a toss-up between the T. Rowe Price US Large Cap Growth Equity and UBS US Growth fund. In the end we went for the UBS fund, because it has got slightly less exposure to the large US technology stocks which we have already got covered in the L&G Global Technology Index fund.

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These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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