US funds fail to deliver star spangled performance

Even the top 10 US equity funds have disappointed over 10 years

US funds fail to deliver star spangled performance

Investors put off investing in Europe by the likelihood of a Greek exit, and concerned by the prospect of problems in Emerging Markets, not to mention plunging stock markets in China, may well be tempted to invest in the US equity markets via a fund.

Those seeking exposure to the top performing US equity funds over the past 10 years, would be surprised to see that they’ve not performed that well over the past decade.

 Name  NASDAQ Ticker 5/31/2005 To 5/31/2015 – Performance
ProFunds Biotechnology UltraSector ProFund;Inv  BIPIX  23.26
T Rowe Price Health Sciences Fund  PRHSX  19.59
Fidelity Select Biotechnology Portfolio  FBIOX  19.53
Prudential Jennison Health Sciences Fund;A  PHLAX  18.84
Fidelity Advisor Biotechnology Fund;A FBTAX 18.77

Source: Lipper, a Thomson Reuters company

For the future

Of course these figures take in the 2008-09 crash, but that is the point. You really ought to look at how a fund manager does in both the good and bad times before choosing them.

Since the 2009 the  the S&P 500 is up just over 200% in sterling terms, while the FTSE 100 in comparison, is up 141% according to FE Analytics.

Should you invest now?

Certainly, on some measures the US stock market, is now looking expensive. For example, according to figures from Lipper for the S&P 500, the current forward Price Earnings (PE) ratio is 17.3, the long term average is 14.8.

The S&P 500 is an American stock market index based on the market capitalizations of the 500 large companies listed on the two main US (NYSE and NASDAQ) stock exchanges

Another measure is the cyclically-adjusted price-earnings ratio, or CAPE, was devised by Professor Robert Shiller, at Yale University.  It’s also known as the Shiller PE Ratio.

Where the CAPE differs from a simple PE is the way in which, rather than using one year’s earnings per share, it uses an average of the last 10 years’ earnings. As a result the ratio is also sometimes known as the PE10.

According to this measure the current Shiller PE ratio is 26.77. The mean is 16.00. The minimum level was 4.78 (Dec 1920), the maximum level was 44.19 (Dec 1999).

There are also some, ranging from economist Professor Steve Keen to Soc Gen global strategist Albert Edwards and including fund manager and author Mitch Feierstein, who question the cosy consensus that the US going to deliver good growth going forward.

This isn’t to say that investors who can invest for the long term, shouldn’t drip feed money into a US fund. It is just to point out the possible risks of a market correction in the near term and the likelihood that growth may be constrained in the future.

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Categories: Analysis, Funds

About Author

Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.