While in dollar terms the S&P 500 only gained 11.2% in the calendar year 2016, a strengthened dollar and a pound battered by Brexit meant in sterling terms the index was up a huge 32.7%.
However, sterling has reversed entirely in 2017, with the S&P rising 18.81% in dollar terms over the year to 11 December, half as much as the 9.9% it returned in sterling as the pound picked itself up off the floor.
Despite this, 2017 proved a fairly good year for US active managers, with the average fund in the IA North America sector producing a 10.14% gain, beating the S&P (in sterling terms). Indeed, just five out of 121 funds in the peer group produced a negative return this year, as markets got to grips with the Donald Trump presidency.
The best performer over the time period was the Morgan Stanley US Growth Fund, which was up 32.44%. It was followed by MFS Meridian US Concentrated Growth, which was up 25.54%, while New Capital US Growth grabbed third spot with a 25.11% gain.
While Trump in various tweets has taken credit for the gains posted by US markets this year, in reality it has been down to a group of US technology stocks, which the world has come to know as the ‘Faangs’ (Facebook, Apple, Amazon, Netflix and Alphabet’s Google).
Funds with exposure to these giants will have seen enhanced returns this year, with all posting double-digit gains for most of 2017. At the end of October, Amazon was the largest holding in the Morgan Stanley fund, which also had Alphabet and Facebook in its top five holdings. The New Capital US Growth Fund meanwhile had Amazon, Apple, Facebook and Alphabet in its top six.
By contrast, the Janus Opportunistic Alpha Fund, which has recorded a 5.55% fall so far in 2017, had none of the Faangs in its top five holdings as at 31 October 2017.
While Trump can take credit for the potential tax cuts that have helped move markets, he cannot take credit for falling unemployment, improving consumer confidence and rising house prices which have all helped pushed the US market higher in 2017.
Prospects for 2018
Given the returns witnessed in 2017, Jeff Rottinghaus, portfolio manager of the T Rowe Price US Equity Fund, says that valuations across most segments of the US equity market today appear full. Coupled with the fact that we are relatively far into the current economic cycle, he believes a slightly more cautious approach is warranted going into next year.
“Within our portfolio, we expect stock selection will be the primary driver of outperformance in 2018 and beyond,” he says. “We believe careful fundamental research will be necessary to find opportunities and we will continue to search for investment opportunities in select areas of the market, utilising our bottom-up stock selection approach.
“The largest overweight position in our portfolio is in healthcare. We favour companies well positioned to take advantage of long-term industry trends, such as ongoing consolidation in the managed care industry, cost-saving distribution methods and innovations in medical devices and equipment.”