Ian Cowie: why it’s unwise for investors to bet against the US

A failed assassination attempt less than four months before the presidential election, plus the appointment of a vice-presidential candidate who claims Britain could become “the first truly Islamist country that will get a nuclear weapon”, should remind investors that we cannot ignore America.

Coming down from the clouds of geopolitics, shares listed in the land of the free comprise nearly two-thirds of the value of all the equities on our planet.

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More importantly for this investor in large and small US businesses, shares in the Association of Investment Companies (AIC) “North America” sector have delivered more than double the global average over the last year and five-years periods, while remaining comfortably ahead over the past decade.

To be specific, American investment trusts generated total returns over those periods of 39%, 157% and 260% respectively but continue to be priced an average of -16% below their net asset value (NAV), according to independent statisticians Morningstar. By contrast, the global numbers - or “all investment trusts, excluding 3i” - are 16%, 35% and 135% with an average discount of -13%.

Little Englanders might not like the fact but shunning North American businesses has not been the smart way to invest for many years. Never mind the past, what about the future?

Former president Donald Trump is ahead in the opinion polls about who will win on 5 November and his close shave with a sniper’s bullet may have improved his popularity.

Share price returns during Trump’s last presidency - between December 2016 and January 2021 - are unlikely to reverse that trend.

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For example, Greg Eckel, fund manager of Canadian General Investments Ord (TSE:CGI), told me: “It may surprise some observers that all of the sub-sectors in the Standard & Poor’s 500 index, except one, had very strong, positive double-digit total returns in Trump’s presidency, despite it including the first year of the Covid pandemic. 

“Technology was the leading sector with 145% total returns and its constituent companies have the staying power to persist regardless of politics. Expect this to continue with NVIDIA Corp (NASDAQ:NVDA), Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT) as logical US large-cap choices and, for pure play e-commerce growth, a Canadian company called Shopify Inc Registered Shs -A- Subord Vtg (TSE:SHOP) fits the bill.

“Healthcare, surprisingly, was a big winner with 85% returns during Trump’s term despite his efforts to overturn Obamacare and reduce the cost of pharmaceuticals. Industrials seem well placed to build on 64% gains, as commitments to infrastructure building has bipartisan support in the United States.”

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Cynics may suspect Eckel of talking his own book - and, of course, he holds all the above stocks. However, this small shareholder is happy to note other top 10 assets within CGI, which have survived since the Great Depression of 1930, include the iPhone giant Apple Inc (NASDAQ:AAPL), the railway Canadian Pacific Kansas City Ltd (TSE:CP) and the wood merchants West Fraser Timber Co.Ltd (TSE:WFG).

That highly diversified portfolio generated total returns of 14%, 80% and 180% over the usual three periods. But CGI continues to be priced at an eye-stretching -40% discount to its NAV.

Pershing Square Holdings Ord GBP (LSE:PSH) is the top performer in the AIC “North America” sector over the past year and five years, with total returns of 45% and 219% respectively. However, PSH lacks a 10-year track record and trades at a -20% discount.

JPMorgan American Ord (LSE:JAM) is the leader over the past decade, with returns over the usual three periods of 35%, 123% and 368%. Most unusually, this investment trust trades at a small premium or nearly 2% above its NAV.

Trump’s “Make America Great Again”, or MAGA, slogan is enthusiastically endorsed by his vice-president pick James David Vance, who first rose to fame with his book about Appalachian drug addiction and poverty, Hillbilly Elegy. Better known as JD Vance - or “Jaydot” to his mates - he also described Trump as “an idiot”, “a cynical asshole…or America’s Hitler” before he seems to have warmed to the man.

Let’s hope his view of Britain improves, too, given his recent comments after Labour won our general election on 4 July.

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Back to business, both Trump and Vance’s MAGA economic strategy is likely to favour businesses focused on the domestic market. That could help JPMorgan US Smaller Companies Ord (LSE:JUSC), where total returns of 11%, 29% and 196% continue to be priced at a -10% discount.

Either way, Eckel warned: “Just in case you weren’t paying attention during the first Trump presidency, be ready for a roller-coaster ride in case there is a second time and, if there is, hold on to your hat or get some of that sticky stuff that holds down his hair to keep grounded.”

Better still, build a diversified portfolio of international investments, which should survive whatever happens next.

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.