Rebound in US boosts returns

FUND FOCUS: American Equities

BEST PERFORMER: AIB US equity. Return YTD: +17.56%.

WORST PERFORMER: VAM US Small Cap Growth Fund Return YTD: -6.21%.

AS TURMOIL reigns in Europe, the US market has already been rebounding, typically advancing in the midst of a recession, rather than after. For euro-zone investors, this surge is being accompanied by the weakening of the euro against the dollar, boosting returns even further.

According to Moneymate, returns among Irish gross domestic funds in the year to May 26th are averaging about 9.35 per cent. One of the best performers during this period is AIB Investment Managers (AIBIM), which recorded growth of almost 18 per cent on its US equity fund. Other strong performers include Aviva’s US equity fund and Axa MG American.

While Róisín Magee, chief investment officer with AIBIM, concedes that some of the growth is coming from the currency, she also identifies the manager’s strategy as a bottom-up stock- picker as boosting performance.

“We have huge sector rotation, the process is on picking individual stocks – it’s a balanced approach,” she says. “We have a range of attractive growth stocks, with good exposure in the consumer discretionary and IT [information technology] sectors.”

Some of the fund manager’s top growth stock picks include restaurant group Chipotle Mexican Grill, casino stock MGM Mirage, semi-conductor firm Cree and online video company Netflix.

In addition to its search for good quality growth stocks, AIBIM also relies on big name blue chips like Colgate and Philip Morris, to balance out its US equity portfolio. Given the poor performance of smaller companies, this strategy appears to be paying off.

Smaller company underperformance has cost VAM’s US Small Cap Growth Fund. It has lost over 6 per cent to date in 2010.

The VAM fund is heavy on stocks such as retail chain 99 Cents Only Stores, and China-based digital media group, Focus Media Holding Ltd.

Losses during the period were also incurred by Bank of Ireland Asset Management’s North American mutual funds and the Axa Blackrock US index fund.

Looking ahead, you shouldn’t expect the US recovery to turn into a boom just yet. “It’s a sub-par recovery,” she says. While the outlook is volatile in the short term, “economic recovery is sustainable”.