Ian Cowie: forget politics, the US is an exciting place to invest

Drama surrounding the US presidential election and speculation about what Donald Trump will do next should focus investors’ minds on risks and rewards in the world’s biggest economy.

Despite eye-stretching returns from its lead in artificial intelligence (AI), the cloud and all things digital, investment trust shares in the “North America” sector continue to trade at an average of -25% below their net asset value (NAV), so there is still time to find bargains - even for folk who have left it a bit late.

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Consider, for example, the well-known fund manager Bill Ackman and his $12.3 billion giant, Pershing Square Holdings Ord GBP (LSE:PSH), which leads this sector over the past five years with a fabulous return of 162%, but remains priced at a -33% discount to NAV. That’s a bargain basement “buy-two-get-one-free” offer from a fund whose top 10 holdings include the self-descriptive Universal Music Group NV (EURONEXT:UMG), the hotel chain Hilton Worldwide Holdings Inc (NYSE:HLT), and the fast-food joint Chipotle Mexican Grill Inc (NYSE:CMG).

It has generated total returns of 25% over the past year and 96% over the decade. Dividends are meagre at 1.3%, albeit rising at an annual average of 7.8% over the past five years, and yearly charges are steep at 2.43%. But hedgies don’t get rich by giving their talents away, and at least PSH has delivered the goods.

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Followers of more recent form may prefer the out-of-favour fund Baillie Gifford US Growth Ord (LSE:USA), which leads its sector over the past year with a remarkable 49% return. Over five years, this increased to 68%, which makes this £723 million fund’s annual fee of 0.7% look relatively low. Sad to say, so is the discount of just -8%.

Never mind the price, for a moment, feel the quality. USA’s top holdings are led by the red-hot graphic processing unit (GPU) or microchip-maker NVIDIA Corp (NASDAQ:NVDA), with Elon Musk’s unlisted rockets and satellites group, Space Exploration Technologies or SpaceX, not far behind, plus his electric car company, Tesla Inc (NASDAQ:TSLA). In typical Baillie Gifford style, there are no dividends and this one is strictly for investors hoping to shoot the lights out with somewhat hit-or-miss explosive growth.

JPMorgan American Ord (LSE:JAM), is the £1.9 billion granddaddy of this sector, having been founded in 1881, not long after the Civil War. More recently, it leads the sector over the past decade with a total return of 318%, followed by 126% over five years and 28% over the past year.

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JAM’s lip-smacking portfolio of blue chips, or large and relatively long-established businesses, is led by the software giant Microsoft Corp (NASDAQ:MSFT), followed by the iPhone-maker Apple Inc (NASDAQ:AAPL) and the ubiquitous Nvidia. Once again, income is negligible at 0.8%, growing by a meagre 3.6% per annum, but with very cheap annual charges of 0.4% and a meagre discount of -4%.

Income-seeking bargain hunters might prefer the $1.5 billion Canadian General Investments Ord GBP (LSE:CGI), which trades at the biggest discount in this sector, -40% below NAV, and offers a yield of 2.5%, rising by 4.6%. Unfortunately, Canadian shares suffer withholding taxes, which cannot be avoided as easily as those south of the border, where the US W-8BEN form enables all dividend income to flow through to British shareholders without deductions.

Even so, CGI’s total returns over the usual three periods of 23%, 95% and 183% are attractive, although charges of 1.4% are on the steep side. Underlying holdings are led by Nvidia, again, plus Apple. There are distinctive stakes in the railway Canadian Pacific Kansas City Ltd (TSE:CP), the self-descriptive West Fraser Timber Co.Ltd (TSE:WFG) and the gold royalties group Franco-Nevada Corp (TSE:FNV).

At the other end of this market by size, JPMorgan US Smaller Companies Ord (LSE:JUSC) might appeal to investors seeking diversification away from blue chips. Total returns are by no means tiny at 27%, 33% and 174% over the usual periods, with meagre 0.7% income, rising by 3.7%, with middling charges of 0.93%.

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As you might expect, JUSC’s underlying holdings in corporate tiddlers are scarcely household names in the UK. But I am glad I transferred these shares from a paper-based broker at £1.50 in March 2014, because they cost £4.55 yesterday, having surged 9% higher on news of Trump’s victory, and remain priced -10% below NAV.

Now spare a thought for the smart-arses, who have been calling the top of the American market all the way up. As I might have pointed out before, perennial pessimism is the easiest way to simulate wisdom about the stock market but it ain’t the way to make money.

Never mind the presidential politics, it’s well worth considering a stake in the most exciting major economy on this planet.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), Canadian General Investments (CGI), JPMorgan US Smaller Companies (JUSC) and Microsoft (MSFT) as part of a globally diversified portfolio of investment trusts and other shares.