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Ian Cowie: betting on the US has served me proud

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Ian Cowie: betting on the US has served me proud

Perhaps the biggest surprise for investors since tensions between America and North Korea ratcheted up recently is that global stock markets have not been seriously rattled by the threat of nuclear war. To paraphrase the comedian Catherine Tate, the indices seem to say: look at my share prices, am I bovvered?

Of course, that confidence could prove dangerously complacent if events take a turn for the worse. But it is a testament to the strength of this ageing bull market that it can shrug off military brinkmanship on a scale not seen since Russia lost the cold war more than a quarter of a century ago.

Taking an even longer view, the investment guru Warren Buffett points out that it hasn’t paid to bet against America since 1765. Back in the country that lost the War of Independence, there is a persistent tendency among investors to underestimate the potential for wealth creation in the world’s biggest economy – in much the same way that many ‘experts’ under-rated its current president.

Few political commentators predicted Donald Trump would win last November’s election and many seem to think he is almost as much of a nutter as the North Korean leader Kim Jong-un. There is a widespread unspoken suggestion that they are two of a kind.

Such cynical equivalence is unlikely prove to profitable for investors who would do better to study the stats on how America generated more than treble the returns to shareholders than the British market delivered during the decade since the global credit crisis began.

According to Fidelity International, US equities produced cumulative returns of 209% compared to 68% from UK equities over the last 10 years. Little Englanders and others who only bought British shares also lagged behind the Europe ex-UK equities average of 81% total returns, emerging markets at 93% and the global equities average of 134%.

Turning from the macro to the micro, I am delighted to report that the American investment trust I began buying in September, 2013, has trounced the opposition in its sector over the last decade, five years and 12 months. If only I had started investing sooner.

According to the Association of Investment Companies, JPMorgan US Smaller Companies (JUSC) delivered total returns of 225% over the last decade; 171% over five years and 27% over 12 months. The comparable AIC North American Smaller Companies sector averages were 165%, 138% and 11%. (Full disclosure: I write occasional pieces for JPMorgan’s investment trust website.)

One problem with these shares is that they pay no dividend. Another is the small size of this fund. With assets under management of £173 million, some wealth managers may shun it on fears that a ‘buy’ note might move the market price against their clients, although that is scarcely a worry for DIY individual investors.

Neither of those problems applies to its bigger brother, the £1 billion giant JPMorgan American (JAM), which yields 2.2%. This is also the only investment trust to have beaten Smaller Companies in North America over the last decade. The blue chip fund delivered total returns of 240% over 10 years, 123% in five years and 23% over the last 12 months.

Both trusts lead their sectors and trade at a discount of 5% to net asset value. I took some profits from the tiddlers fund at 263p per share last March to utilise the annual capital gains tax allowance and they have made little progress since. But I intend to top-up this holding on any weakness because smaller companies could be big winners from Trump’s tax cut proposals – and the president badly needs to deliver on at least one of his promises before next year’s mid-term elections.

After returning recently from three weeks in Maine and Massachusetts, this humble shareholder is happy to continue betting on the world’s biggest economy. If the worst comes to the worst and Jong-un turns out to be a really wrong-un, then share prices will be the least of our worries.

Here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.

 

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