An easier way to invest in the US

Uncomfortable buying shares in individual US companies? Then funds and trackers might be right for you.

There's more to Wall Street than Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) or Netflix (NASDAQ:NFLX), even if this trio and the other so-called FAANG stocks are worth more together than most stock markets on their own.

The understandable fascination of UK investors with these tech giants, which also include Elon Musk's Tesla (NASDAQ:TSLA), ignores so much else on offer in the world's biggest economy, such as the global giants of healthcare, consumer industries or financial services.

By concentrating on the big technology players, investors are not just overexposed to risk but missing out on some of the chunkier dividend yields on offer in many other US sectors.

It takes courage, however, to go against the crowd and pick out those US stocks that look undervalued or have income or growth potential, especially when you're thousands of miles away. Researching the world's biggest market can be daunting for a DIY investor.

It's why funds, investment trusts or trackers can be a good bet for UK investors looking to gain a broader exposure to the US stock market, whether they crave some, all or no exposure to the technology sector.

Expert fund managers know much more about country-specific trends, such as the mood of the US consumer. They recognise the up-and-coming small and mid-sized stocks, the ones offering value after being oversold, and how to build a more balanced approach to US markets. 

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One of the most popular funds for interactive investor clients has been Baillie Gifford American, which has achieved a top ranking return of 138% in the three years to June 2020.

The fund, whose stated aim is to outperform the S&P 500 index by at least 1.5% a year over five-year periods, usually holds between 30 and 50 stocks. At the time of writing, tech plays including Netflix and Google owner Alphabet (NASDAQ:GOOGL) made up of 29% of the total assets, alongside a further 14% of exposure in healthcare and a similar level in communication services.

Baillie Gifford is also behind the hugely popular Scottish Mortgage (LSE:SMT) which, thanks to its global focus on technology companies, has been the most popular investment trust on the interactive investor platform for most of the past six years. Its success reflects the fact that it is one of the biggest shareholders in Tesla.

The £20 billion Fundsmith Equity Fund has been another popular option, with two-thirds of its portfolio held in the United States through stocks including Facebook and Philip Morris.

Other funds such as LF Miton US Opportunities will offer investors a mix of big names such as Amazon, as well as others they might not know, such as construction aggregates firm Vulcan Materials or Waste Connections, whose services in the US and Canada include oilfield waste.

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For the more cost-conscious investor, US index trackers can be a better option as they require less day-to-day management and have much lower charges as a result. They are also not reliant on the outperformance of the fund manager.

This passive option can be as simple as tracking the S&P 500 or Nasdaq technology index, or an exchange traded fund (ETF) that weights US firms based on metrics such as revenues, cashflow, net assets or dividends. 

One of the most popular choices among interactive investor clients has been the Vanguard US Equity Index, which invests in a representative sample of the component shares of the index.