Ian Cowie: how I invest in the US in my ‘forever fund’

Our columnist names the investment trusts he invests in to access the US market. 

Tomorrow (15 January) sees the start of the US earnings season, when some of the biggest companies in the world will report results. While dividend payouts are under pressure, capital returns to investors in the world’s biggest economy remain impressive.

The average investment trust in the North America sector delivered 28% over the last year, 123% over the last five years and 222% over the last decade, according to independent statisticians at Morningstar via the Association of Investment Companies (AIC). That beats the stars and stripes out of average returns from all types of conventional investment trust of 16%, 87% and 180% over the same periods.

Baillie Gifford US Growth (LSE:USA) led the sector over the last year with an eye-stretching total return of 124% over the last year, after launching in March 2018.

Even so, some investors may fret about this trust’s top holding. The electric carmaker, Tesla (NASDAQ:TSLA), accounts for 9.5% of its £904 million total assets, and Shopify (NYSE:SHOP) - Canada’s answer to Amazon (NASDAQ:AMZN) - ranks second with Amazon third. USA’s top 10 even includes 2020’s most modish stock, Zoom Video Communications (NASDAQ:ZM.

With USA trading at a 4.9% premium to its net asset value (NAV), buyers today had better hope there are no bumps in the road for Tesla and the shares keep zooming skyward.

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Bargain-hunters willing to consider non-AIC members might prefer Canadian General Investments (LSE:CGI), which ranks second in the North America sector over the last year, five years and 10 years with returns of 34%, 129% and 163%. Better still, shares are priced below its NAV and so it trades at a noteworthy 35% discount. SHOP is also among CGI’s top 10 holdings and, unlike USA, there is a dividend yield of 2.6% - although shareholders’ income shrank by an annual average of 20% over the last five years.

Investors for whom total returns over the medium to long-term are most important may favour JPMorgan American (LSE:JAM), which leads the sector over the last five and 10 years with 143% and 302%, before delivering 23% last year. Despite that, JAM continues to yield 1.1%, having grown its dividends by an average of nearly 15% over the last five years.

If that rate of ascent is sustained, shareholders’ income would double in the next five years. JAM’s top 10 assets are led by technology giants Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and AMZN.

Full disclosure: AAPL happens to be my most valuable holding, after I invested at $95 in February 2016. Despite a four-for-one share split last August - and worries about increased regulation - AAPL traded at $129 this week.

Income-seekers in North America have paid a high price for yield in terms of total returns foregone. For example, BlackRock North American Income (LSE:BRNA) offers tempting dividends of 4.8% but suffered a negative return of minus 7.7% last year, after a positive 88% over the last five years.

Founded in October, 2012, BRNA’s top assets are the telecommunications giant Verizon (NYSE:VZ) and the bank Citigroup (NYSE:C) followed - perhaps unexpectedly - by the British armaments business, BAE (LSE:BA.), and the French pharmaceutical firm, Sanofi (MTA: SANF).

That last selection does seem surprising when there is so much pharmaceutical innovation in America that, for example, Worldwide Healthcare (LSE:WWH) has 69% of its assets invested in the US. WWH has beaten BRNA over the last year and five years with total returns of 23% and 115%. WWH happens to be one of my top 10 shares after delivering total returns of 519% over the last decade.

This raises the important point that you don’t need to buy investment trusts with “America” or “US” in their names to gain exposure to this economy. Polar Capital Technology (LSE:PCT), another of my top 10 assets that I have held for more than a decade, has 70% of its money in the ‘land of the free, home of the brave’. Total returns over the last year, five years and decade sparkled at 42%, 296% and 524%.

Nor is there any need for investors in America to restrict ourselves to blue-chip mega caps. As discussed here last month, JPMorgan US Smaller Companies (LSE:JUSC) – another ‘forever fund’ holding and the top performer in its tiny sector over the last year, five years and 10 years – is thriving among mid-caps and corporate tiddlers.

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After delivering total returns of 20%, 152% and 365% over the usual periods, JUSC has put on a spurt in the last six months, returning 49%. Is it too late to join the fun, or has the Biden boom just begun? This small DIY investor intends to hang on and find out.

Ian Cowie is an investor in Apple (AAPL), JPMorgan US Smaller Companies (JUSC), Polar Capital Technology (PCT), Verizon (VZ) and Worldwide Healthcare (WWH) as part of a diversified portfolio of investment trusts and other shares.

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