While the fund’s 27% allocation to information technology might seem high to UK investors, it is an underweight against its Russell 1000 Growth benchmark (the sector accounts for 28% of the index). The largest sector overweights are to healthcare and consumer staples, both of which have benefited from quantitative easing.
In their latest update, Acheson and Cloonan say they are cautious about the outlook for equities overall but, as would be expected, are “constructive” on the quality large caps their fund focuses on.
“We continue to favour the healthcare sector, in particular, due to secular growth in healthcare spending and innovative products in the biotech and pharmaceutical industries. While pricing power is a concern, we believe companies that innovate will be able to maintain pricing levels and grow volumes,” they say.
“Consumer staples is another sector we find attractive, as ‘staples’ companies have tended to be more resilient in generating cash flows and growing earnings during difficult economic environments. In that sector, we favour owning companies that have exposure to the growing snack foods category and tobacco firms, which are doing well as volume declines moderate and pricing increases.”
As would be expected given the outperformance of growth as an investment style over recent years, the bulk of outperforming US equity funds use this approach.
Close behind the Pioneer offering are Legg Mason ClearBridge US Large Cap Growth, Old Mutual North American Equity and T Rowe Price US Blue Chip Equity, which have made respective five-year returns of 102%, 102% and 97%. All three are overweight growth stocks.
The Mason ClearBridge and T Rowe Price funds share an overweight to healthcare with the Pioneer portfolio, with holdings such as CVS Health, UnitedHealth and Celgene being found in the former and Alexion Pharmaceuticals and Allergan owned by the latter.
Unlike Pioneer Sicav US Fundamental Growth, they are overweight the information technology sector. All have top-10 holdings in Alphabet and Amazon; Mason ClearBridge and T Rowe Price also own Facebook and Microsoft as major holdings.
The fact that US funds tend to have a larger weighting to technology has aided their performance in recent years and especially in 2015.
While last year ended up being a difficult one for more stock markets, technology was a clear winner – particularly the so-called ‘FANG’ companies of Facebook, Amazon, Netflix and Google (see Investment Strategies, p43-46) though Microsoft also did well.
Not all managers think the outlook for these technology giants is as rosy as the bulls. Allianz Technology Trust manager Walter Price says: “There have been sound reasons behind the strength of the FANG quartet in 2015, but we see some threats to its continuation.”
Up in the clouds
“Although these companies will continue to benefit from the movement to the cloud, and to video over the internet, rather than through TV or satellite, we believe the advertising market may be challenging in 2016,” says Price.
“While advertising growth may be better in mobile than it is elsewhere, there could be a pause in the growth rates and some of these companies cannot be immune. We have taken our Facebook position down as a result.”
Of these top-performing funds, Old Mutual North American Equity’s top 10 holdings look the least like the others. While the Pioneer, Mason ClearBridge and T Rowe Price funds have achieved their returns through a focus on large and mega-caps, it is overweight mid-caps – both growth and value – with almost one-third of assets held in these parts of the market.
Managers Ian Heslop, Amadeo Alentorn and Mike Servent have worked together since 2005 and use a quant-led strategy, which seeks to allocate between quality and value stocks depending on the prevailing market sentiment.
The £1bn portfolio has 247 holdings, with Apple, Amazon and Alphabet being the largest. After those, it has major positions in Pfizer, Intel, Philip Morris, Pepsico and Verizon Communications.
Although all the above funds have a growth bias in the portfolios at present, not all the funds that have beaten the S&P 500 over the five years to the end of February take this approach.
Tough hunting ground
The £762m Fidelity American Special Situations fund invests in significantly undervalued companies that manager Angel Agudo believes have the potential to recovery. Agudo took over the fund in December 2012. Over that time it has made an 82% total return, ranking it second in the sector and outperforming the S&P 500’s 64% gain.
Like Old Mutual North American Equity, the portfolio has a greater allocation to mid and small-caps than the typical US equity fund. Exposure to these parts of the market currently total just under 40% of assets.
Fidelity American Special Situations has a small overweight to information technology, with EMC Corporation and Microsoft appearing in its top 10. But industrials is the largest overweight, taken from holdings such as L3 Communications and General Electric.
The bulk of outperforming US equity funds use a growth approach to investing.
