At around £110bn, IA North America is the third-largest standalone sector in the Investment Association (behind Global and UK All Companies), representing about 8% of assets in total. The sector has around 280 funds for investors to choose from. To be included in this category, each fund must invest at least 80% of its assets in North American equities.
During the past 12 months, only five new strategies have launched, three of which are passive funds. As we have seen in recent years, passives still dominate flows into the sector, as investors continue to look for lower-cost solutions in a highly efficient market that active managers have found increasingly hard to beat.
As a result, of the 30 largest names in the sector, more than 20 of them are passive vehicles. Despite this, a number of managers have been able to generate alpha above the US market during the last three years, which furthers the case for selective fund picking within the sector.
Macro backdrop and performance
Last year was another period of strong economic growth in the US, and even stronger market returns. Despite a spike in volatility in the summer, and the threat of a destabilising election in Q4, earnings were resilient and are expected to rise further this year.
Throughout 2024, the US continued to be a major force behind global market returns. Several mega-cap companies – the so-called ‘magnificent seven’ – thrived due to the ongoing AI trend. Following the election results, markets were optimistic as Donald Trump’s pro-business policies were embraced by corporate America. This new era of deregulation in 2025 is already being factored into market prices.
During the past 12 months, in sterling terms, the IA North America sector rose 22.1% versus 26.7% from the S&P 500. This reflects a second consecutive year of returns above 20% for the US equity market, a feat not seen for more than 25 years. The US continued to lead the way last year, with mega-cap tech stocks driving returns for a second year in a row, in a market dominated once again by growth over value.
An election victory in November for former president Trump ensured value stocks had a positive end to the year, on the promise of deregulation for financials. While the Federal Reserve began its rate-cutting programme, expectations have been significantly pared back on the stickiness of inflation and resilience of growth in the world’s largest economy.
The top-performing sector for 2024 within the S&P was the communication services sector, largely led by AI beneficiaries Meta (formerly Facebook) and Alphabet (Google parent company), with technology a close second as Nvidia continued to surge on the demand for its graphics processing units, which are key enablers of artificial intelligence.
Conversely, the healthcare and materials sectors languished, the former of which endured a tough last quarter as the (expected) incoming health secretary Robert F Kennedy Jr promises to shake up the industry.
Read the rest of this article, plus Charlie McCann’s funds to watch by assets under management, three-year performance and newcomers in February’s Portfolio Adviser magazine